ESSiONAL ACCOUNTING COLLtCfiPN
MSU BUtlNffli
History of
PUBLIC ACCOUNTING
i'', the U; ited States
University of Florida Libraries
Gainesville, Florida -
Gift of
Potter, Bower & Company
Certified Public Accountants
HISTORY OF PUBLIC ACCOUNTING
IN THE UNITED STATES
MSU Business Studies
ELECTRONICS IN BUSINESS
Gardner M. Jones
EXPLORATIONS IN RETAILING
Stanley C. Hollander
ELEMENTARY MATHEMATICS OF LINEAR
PROGRAMMING AND GAME THEORY
Edward G. Bennion
MARGINAL ASPECTS OF MANAGEMENT PRACTICES
Frederic N. Firestone
HISTORY OF PUBLIC ACCOUNTING IN THE
UNITED STATES
James Don Edwards
MSU BUSINESS STUDIES 1960
HISTORY OF
PUBLIC ACCOUNTING
in the United States
(oQ-C 3 3 C 9
JAMES DON EDWARDS
Professor and Head, Department of Accounting
and Financial Administration
Michigan State University
Bureau of Business and Economic Research
Graduate School of Business Administration
Michigan State University, East Lansing
Copyright © 1960
By the Board of Trustees
Of Michigan State University
East Lansing, Michigan
GO
Library of Congress Catalog Number: 66-63369
Dedicated to my wife, Clara
3
I*
i
Foreword
There has long been a need for a book such as this— a readable,
reasonably concise history of the accounting profession from its be-
ginnings to the present day. Most certified public accountants have
only vague conceptions of where their profession came from, how
it developed, how its standards have evolved, what social, economic
and legal forces have shaped it. Yet it is important that professional
men should understand these things. The past is a guide to the
future. If one knows the reasons why things are as they are, he
can better foresee how they are likely to be in the years ahead.
Professor Edwards, in his laudable determination to keep this
book down to manageable size, has had to make difficult choices
of inclusion, exclusion, and emphasis. Many readers will doubtless
disagree with the manner in which he has dealt with one subject
or another. Indeed, I would treat some of the sections, dealing with
events in which I have participated, quite differently from the way
in which he has dealt with them. But this is not to say that he is
wrong. Any view of history is partly subjective. Professor Edwards
has kept close to the published record, and his own opinions
and interpretations have been kept to a minimum.
The result is a series of dramatic highlights, illustrative of the
multifarious problems besetting a young profession which has
been catapulted into prominence by the economic and social
forces of the twentieth century. The author does not attempt
exhaustive analysis of each area of professional activity, nor does
he claim to have described every event which might be considered
significant. But he has set out the milestones, clearly marking
out the course of professional growth.
This book, in my opinion, will be fascinating and rewarding
reading, both for C.P.A.'s who have lived through some of the
events described, and for C.P.A.'s and students who up to now
have had no knowledge of them. I move a vote of thanks to Don
Edwards for the pioneering work he has done in producing this
modern history of public accounting in the United States.
John L. Carey
Executive Director
American Institute
of Certified Public Accountants
Preface
The purpose of this book is to fill a vacuum in the literature of
public accounting, one of the more recent professions to attain
the status of international recognition. The designation Certified
Public Accountant was first used in New York state in 1896 and
now has legal standing in all fifty states; international recognition
is implicit in the acceptability of the public accountant's profes-
sional services anywhere in the world.
The business historian, the professional man, and the student
entering the field should all know something of its growth in the
United States. This study covers the significant historical develop-
ments in public accounting; it emphasizes the growth of a profes-
sion rather than the evolution of a body of subject matter. My first
intention was to make a comprehensive study of all aspects of the
accounting profession, but that huge task was soon discarded in
favor of this more limited undertaking.
No attempt is made to present the history on a state-by-state basis.
Rather, the unifying principle has been to select those national
and international developments through which the prestige and pro-
fessional standing of the C.P.A. have been augmented. The material
is organized chronologically, from the European antecedents of
American accounting practices through the evolution of the educa-
tional, legal and organizational aspects of the profession. Some of
these developments are so recent that their judicious interpretation
cannot yet be undertaken. The respect with which the professional
opinion of the certified public accountant is viewed by government
officials, businesses, banking and financial institutions, and the gen-
eral public may be one of the important bases of our system of
enterprise. The fact that most government agencies as well as the
stock exchanges and financial institutions require an expression of
opinion by a certified public accountant on the financial position
of business firms is an indication of the magnitude of that indiv-
idual's responsibility to the public.
My inquiry into professional history was first begun under the
direction of Dr. C. Aubrey Smith of the University of Texas. I am
grateful to Professor Smith for stimulating my interest in the sub-
x History of Public Accounting
ject. The manuscript has since been completely revised and brought
up through the decade of the 1950's. Some of the material of the
original research project was also used in preparation of articles
which have appeared in The Accounting Review, Accounting Re-
search (Cambridge University), and The Business History Review
(Harvard University).
I am appreciative of the assistance given by Miss Katherine
Michaelsen, Librarian, the American Institute of Certified Public
Accountants, in locating books and periodicals for use in this study.
I have also drawn on the libraries of the University of Michigan,
Michigan State University, and the University of Texas.
I am indebted also to Dean Alfred S. Seelye, Dean of the Grad-
uate School of Business Administration, Michigan State University,
for encouraging the completion of the manuscript and to Dr. Anne
C. Garrison and Mrs. Esther B. Waite for their constructive editor-
ial criticisms.
Several public accountants provided details of the early develop-
ment of the profession in which they played a part. The late Mr.
Norman Webster, formerly Chairman of the History Committee of
the American Institute, was helpful in referring me to information
not generally available to the public, especially that having to do
with early developments in the field of public accounting. The late
Mr. Ernest Reckitt of Chicago, who was issued New York Certified
Public Accountant Certificate Number 60, discussed with me the
problems of writing the history of public accounting in the United
States. Many of the present members of the profession gave me
data on the national and international growth of their firms and
about their mergers.
Mr. C. W. DeMond, partner, Price, Waterhouse and Company,
was helpful in furnishing early audit certificates issued in the first
two decades of this century.
I am especially appreciative of the interested comments and advice
given me by Mr. John L. Carey, Executive Director of the American
Institute of Certified Public Accountants.
James Don Edwards
September 21, 1960
East Lansing, Michigan
Contents
Chapter Page
I INTRODUCTION 1
II THE ANTECEDENTS OF AMERICAN PUBLIC ACCOUNTING 5
Professional Functions 5
Investigations and Audits 5
Early Court Decisions Affecting Auditors 9
Functions of the Public Accountant and Laws Affecting Him 12
Professional Status 15
Combination Vocations 15
Early Professional Organizations 19
Professional Standards 24
Training in England and Scotland 25
Society Activities 29
Summary 30
III DEFINITIONS OF AMERICAN PUBLIC ACCOUNTING 32
Definition and Discussion of Terms 33
Illinois Law 36
Georgia Law 37
Vermont Law 37
North Carolina Law 38
Wisconsin Law 38
Iowa Law 39
Texas Law 39
Alabama Law 39
District of Columbia Law 39
Tennessee Law 40
IV THE EMERGENCE OF PUBLIC ACCOUNTING IN THE
UNITED STATES, 1748-1895 42
Early American Accountants 42
British Accountants in the United States 42
Functions of Early American Public Accountants 43
Formation of Accounting Firms 48
Professional Organizations 51
Institute of Accountants and Bookkeepers 51
American Association of Public Accountants 52
Accounting Literature and Education 57
Early Bookkeeping and Accounting Books 57
Nineteenth Century Bookkeeping and Accounting Education 60
The American Association's Educational Effort 61
Proposed Legal Recognition 65
Summary 67
V PUBLIC ACCOUNTING IN THE UNITED STATES, 1896-1913 68
First C.P.A. Law and Other Legislation 68
New York Legal Recognition 68
Efforts at Federal Regulation 70
Legislation in Other States 72
First Violation of C.P.A. Law 72
Xll
History of Public Accounting
Chapter
Page
C.P.A. Examination, Certification, and Professional Expansion 73
Analysis of First C.P.A. Examination 73
Examinations— Thirty Boards 75
Examination Results 76
Newly Established Firms and Branch Offices 77
Educational Activities of the Profession 78
Education and Accountancy 78
Professional Organizations 83
American Association of Public Accountants 83
National Society of Certified Public Accountants 84
Founding of the Federation 84
First International Congress 86
Communication on Merger 87
One National Organization 88
Functions of the Profession 90
Audit Standards 90
The 1909 Tax on Corporation Income 93
Public Attitude Toward the Profession 97
Accountancy Service for Lawyers 97
Summary 99
VI PUBLIC ACCOUNTING IN THE UNITED STATES, 1913-1928
101
Fiscal Events Affecting Accounting 101
The Sixteenth Amendment and Accounting (1913) 101
War and Accounting (1916) 104
War Contracts and the Public Accountant 106
Advisory Committee to the Council of National Defense 108
Professional Organization 109
State C.P.A. Legislation 109
Question of Constitutionality 110
National Associations 114
The National Association of Certified Public Accountants 118
American Institute and Federal Charter 120
Federal Incorporation of the American Institute of Accountants 123
Changes from First Bill Drafted 125
American Society of Certified Public Accountants 127
Institute Rejects an Amendment 130
American Institute of Accountants Board of Examiners 130
American Institute of Accountants Library 132
American Institute of Accountants Bureau of Research 132
Practice before the Board of Tax Appeals 133
Federal Reserve Board Requests a Pamphlet 134
Education for Accountancy 135
Expansion of C.P.A. Firms 136
Reasons for Growth of National Firms' Branch Offices 138
Reporting Standards for Certified Statements 140
Auditor's Responsibility and the Law 141
Summary 147
VII PUBLIC ACCOUNTING IN THE UNITED STATES, 1928-1949 148
Influence of the Depression 148
Reporting Standards for Certified Statements 149
Revised Auditing Pamphlet 149
Effect of the New York Securities Exchange Requirements 149
New York Stock Exchange Statement 150
Contents
Xlll
Chapter
Page
Requirement of Independent Audits by Chicago Stock Exchange 154
Securities Act of 1933 154
Liability of Accountant under Act 156
Administration of the Act 157
Securities Exchange Act of 1934 158
Liability of Accountants under the Securities and Exchange Act 159
Commission's Dependence of Public Accountants 159
Opinions of the Commission 160
Independence of Accountants in Reporting to the
Securities and Exchange Commission 161
McKesson fc Robbins Case — Background 163
Public Hearings before Securities and Exchange Commission 164
Commission's Conclusion 166
Letter from Price, Waterhouse and Company 166
Extension of Audit Procedures 168
Reporting Problems as a Result of the War 170
Drayer-Hanson Case 172
Professional Organization and Jurisdiction 173
Public Accounting Legislation 173
College Degree as Prerequisite to Taking the C.P.A. Examination 179
One National Organization 180
Publishing Company 185
Planned Examinations 185
Practice before Treasury Department 186
Lawyers and Accountants Conflict 188
The Bercu Case 191
The Administrative Practitioners Bill 193
HR 3214— Tax Court of Appeals a Court of Record 195
National Firms and Their Continued Spread 196
Summary 197
VIII PUBLIC ACCOUNTING IN THE UNITED STATES DURING
THE 1950's 198
Incidents of the Decade 200
Expanding Field of Auditing 200
AFL-CIO and Independent Audits 200
Committee on Relations with l.C.C. 201
Report of the Committee 202
Railroad Accounting Incident 202
Arthur Andersen & Co. and Rule 5(e) 204
Management Services by CPA.'s 206
Bulletins on Management Services 210
New National and International Offices 210
Regulatory Legislation and the American Institute 218
States with Regulatory Legislation 219
Public Accountants and the Institute's Legislative Policy 220
Professional Education for the C.P.A. 222
Council of American Institute Position on Standards 226
Graduate School in Accounting 228
Continuing Education and the Institute 229
Public Accountants' Cooperation With Bankers 230
State Society of CPA.'s Anniversary 231
The Journal's Birthday 231
_. Women C J^A^s. 231
American institute's Committee on Research Program 232
Accounting Research, Terminology, and Auditing Bulletins 236
Cooperation with Noncertified Public Accountants 243
xiv History of Public Accounting
Chapter Page
Sixth International Congress 243
Seventh International Congress 244
Committee on Long-Range Objectives of the Profession 245
American Institute's Films 245
C.P.A. Examiners Meet 246
Institute Membership 246
A. I. A. Becomes A.I.C.P.A. 246
What's in a Name? 247
Institute and Accounting Opinions 248
Rules of Professional Conduct 251
Enforcement of Professional Ethics 256
Accountant's Legal Responsibility 262
Securities and Exchange Commission's Influence 263
Dangerous Precedent Set by S.E.C. 264
C.I.T. Case— Liability to Third Parties 266
S.E.C. Criticizes Report 268
S.E.C.— Seaboard Case 269
T.N.B. & S. Statement on the Seaboard Case 271
Atlas Plywood Story 272
Use of C.P.A. Title by Partnerships 273
Certified Public Accountants and Lawyers Conflict:
The Conway Case 275
A gran Case 276
American Institute Withdraws from Agran Case 280
Practice Before Treasury Department 281
Bar Lists Seven Objectionable Tax Activities 284
Lawyers and C.P.A.'s Co-operation 284
Ethics and Practice of Law and Public Accounting 287
Employment of Lawyers by C.P.A. Firms 288
Use of Title "Tax Consultants" 293
Common Interest of Lawyers and CPA.'s 296
Summary 297
IX SUMMARY 299
BIBLIOGRAPHY 308
APPENDIX A 328
APPENDIX B 336
CHAPTER I
Introduction
The profession of independent Certified Public Accountant was
first given legal recognition in 1896 in the state of New York. Prior
to the passage of this legislation, public accountants had practiced
for some time in various sections of the United States; indeed,
their earliest activities antedated the American Revolution. Their
first national organization, the American Association of Public Ac-
countants, was formed in 1886.
Since its beginning, the profession of public accountancy has
made a significant contribution to financial confidence in American
business. Reliance on independent audits of financial statements
has by now become an integral factor in public trust in business
enterprise. Since this is so, it is surprising that no contemporary
history of public accounting in the United States has been written
hitherto. There are four books in the general area: Richard Brown's
A History of Accounting and Accountants (Edinburgh and London,
1905) , Wilmer L. Green's History and Survey of Accounting (New
York, 1930) , A. C. Littleton's Accounting Evolution to 1900, issued
by the American Institute Publishing Company in 1933, and Arthur
H. Woolf's A Short History of Accountants and Accounting (Lon-
don, 1912) . In addition, a few state societies have brought out histor-
ies of their organization on the occasion of their golden anniver-
saries: an example of such a book is The New York State Society
of Certified Public Accountants' Fiftieth Anniversary, published in
1947. There have also been histories of individual public account-
ancy firms, such as C. W. DeMond's Price, Waterhouse and Company
in America, which appeared in 1951.
While these books are useful in their kind, it is obvious that
there is a gap in accounting literature. The present work is designed
to fill this; it is addressed to accountants, business historians, and
professional students. As the profession is now sixty-four years old,
from the legal point of view, the potential audience is a large one;
the various states have issued in excess of 65,000 C.P.A. certificates,
2 History of Public Accounting
and the American Institute of Certified Public Accountants has a
membership of 35,000. This sizeable body of professional men
should have available to them an historical study of the national
growth of their discipline.
Throughout this book I have emphasized the importance of the
increase in dignity of the profession in the eye of the public, and
stressed the profession's own growing recognition of the necessity
for educational standards. These trends are clearly evident in the
factual records. My emphasis is less on interpretation of events
than on the events themselyes. It is of paramount importance that
the facts of accountancy history be assembled, that they be set in
order and presented in the proper matrix of contemporary economic
life. I have not attempted to evaluate economic influences on the
development of the profession, but rather to describe its growth, in-
dicating the highlights and pointing out its special problems.
It will be obvious to the reader of these chapters that the role
of the Certified Public Accountant has changed a great deal in the
last sixty years. While one of his functions, that of independent
audit, has remained the primary one, expansion into the field of
federal income tax, estate and gift tax planning as well as the area
of management services has added to both the responsibilities and
the prestige of the public accountancy profession.
A word about the general plan of organization will be useful to
the reader. The material is developed chronologically, not on a
topical basis. Either approach has its advantages as well as its serious
deficiencies, but a choice of method had to be made. In view of
the complexities of the profession's history, organization on a time
basis seemed to present less difficulty to the reader. Accordingly,
the account opens with the historical background: the antecedents
of American public accounting in England and Scotland.
There follows a discussion of individual, legal and institutional
definitions of the public accounting function, some historical and
some contemporary. These data are given at length, as they provide
a valuable indication of the extent and complexity of the account-
ant's activities. It will be apparent that no "ideal" definition exists,
but a survey of the whole spectrum of definitions indicates the broad
social environment in which the profession operates, and suggests
the complications of its history.
In the chronological treatment that is then resumed, the period of
emergence of public accounting in the United States is considered
Introduction 3
to cover the years 1748 to 1895, spanning the time from the earliest
ascertainable date for the performance of any of the profession's
functions in the Colonies to the year prior to the enactment of the
first C.P.A. law. This chapter also contains a discussion of the func-
tions of professional organizations and the development of account-
ancy education during these years.
The period 1896-1913 forms the next natural division of our
chronology. It terminates in the last year before World War I, the
same year in which the federal income tax was enacted. The salient
topics in this chapter are C.P.A. legislation, the C.P.A. examination,
and expansion in the functions of the profession.
The war and postwar years, ending in 1928 just before the onset
of the Great Depression, make up the period treated in the next
chapter. During this era the profession's functions increased greatly,
in part as a result of the work brought about by cost-plus contracts.
The augmented responsibilities of the Certified Public Accountant,
including that of the auditing function, led to the establishment by
the Federal Reserve Board of minimum standards for professional
audits. It was this same period that brought the American Institute
into real national prominence.
Influences of the depression, and the establishment of reporting
standards of certified statements, receive most attention in the ac-
count of the years 1928 to 1950. The McKesson and Robbins case
was influential at this time, the Securities and Exchange Commission
was established, and the American Institute issued its first extension
of audit procedures. The jurisdictional conflict between Certified
Public Accountants and lawyers was a growing problem.
1950-1960 is recognized as the period in which the Certified Pub-
lic Accountant has been acclaimed as a professional man on a par
with other professional men such as lawyers and doctors. In this
decade much attention was paid to the accountant's educational and
experiential standards. The lawyer-accountant conflict continued;
a joint commission was set up by the American Bar Association and
the American Institute of Certified Public Accountants with a view
to establishing principles and defining functions. National ac-
counting firms became international in scope and operations, a devel-
opment that reveals worldwide recognition of the work of the
Certified Public Accountant. Likewise, during this period, auditing
and accounting standards continued to receive the attention of the
accountancy profession: the Institute established an Accounting
4 History of Public Accounting
Principles Board and a Professional Development Department. The
obviously short-view character of our estimate of such recent events
makes the decade of the Fifties an extremely difficult one to eval-
uate. At so close a range one can scarcely hope to see the forest,
but I have tried to record faithfully the nature and number of the
individual trees.
The chronological account surveyed above is supplemented by
two appendices. Appendix A gives the complete text of the first
C.P.A. examination, while Appendix B records state C.P.A. cer-
tificates issued by year from 1896 to 1958.
The responsibility for the limitations of this book, as regards both
omission and commission, is wholly my own. It is my hope that this
factual account will serve as the basis for further study of the eco-
nomic impact of the independent Certified Public Accountant upon
the development of American business.
CHAPTER II
The Antecedents of American Public Accounting
In early times keeping records was associated with governmental
administration and distribution of contributed capital and gain to
joint adventurers in the Old World. Commercial record keeping
seems to have been more vigorous and to have developed into
double-entry bookkeeping and then into the analysis of proprietor-
ship. Double-entry bookkeeping reached Great Britain from north-
ern Italy in about the fifteenth century. In the late Renaissance it
was also flourishing in Holland, and commercial contacts between
that country and England also influenced practices in the latter
country. Although it was introduced in London about 1550, it did
not become well known for fully another century.
Just as customs, common law, and commercial practice came to the
United States from England and Scotland, so did the practice of
accountancy, either through books or through the accountants them-
selves. Direct links with countries other than England and Scotland
are not very clear. This chapter describes the development of ac-
counting in the antecedent countries during the eighteenth and
nineteenth centuries.
PROFESSIONAL FUNCTIONS
Investigations and Audits
It was in 1720 that the first major recognition of a public account-
ant was given to Charles Snell, one of the outstanding English
accountants of the eighteenth century, 1 who had written "Observa-
tions Made Upon Examining the Books of Sawbridge and Com-
pany." 2 This company was one of the subsidiaries of the South Sea
X H. C Bentley, A Brief Treatise on the History and Development of Accounting (Boston: Bentley
School of Accounting and Finance, 1929), p. 30.
a "A History of the Accounting Profession," The Accountant, XXI (April, 189S), 375.
6 History of Public Accounting
Company which Snell was engaged to investigate. The implications
in the Accountant article lead one to believe that the report was is-
sued early in 1721. The report apparently conformed to the stand-
ards of that day. Snell was known in London as a "Writing Master
and Accountant." 3
Snell's report was undertaken at the request of a special committee
of Parliament. He had been appointed by this committee to conduct
an investigation of the records of the South Sea Company, a public
organization, and more particularly its "subsidiary, the Sawbridge
Company. It had failed, as had many other companies after the burst-
ing of the South Sea Bubble in December, 1720. 4 Snell's report,
according to Bentley, was the first ever rendered by a public ac-
countant. 5
The South Sea Bubble was the collapse of a series of financial
projects which originated with the incorporation of the South Sea
Company in 1711 and ended nine years later in general disaster.
The plan was for the English government to sell certain trading
monopolies to a company in return for a sum of money to be devoted
to the reduction of the national debt. The company, founded in
1711, was granted a monopoly of the British trade with South Amer-
ica and the Pacific islands, the riches of which were confidently
believed to be unlimited.
As the promoters were mostly wealthy and respected merchants,
the public bought readily. 6 Soon the company began to retire the
government annuities for life, payments the government had agreed
to pay, with a small amount of stock issued at a high premium.
Previously, public purchases of stock had caused it to appreciate
greatly in value. The selling price increased over 250 percent during
the first three months of 1720. By the middle of the year the stock
had risen in price from £128 to £1,000. By this time the extra-
ordinary success of the South Sea Company had many imitators, and
the result was a wild mania of speculation, with the inevitable end—
a crash.
The stock of the South Sea Company reached £1,000 in July; in
August the fall in price began; in September, just after the insiders
»"A Hundred Years of Accountancy," The Accountant, XXVII (January, 1901), 38.
4 H. C Bentley, A Brief Treatise on the History and Development of Accounting, p. 30.
e "A History of the Accountancy Profession," The Accountant, XXI (April, 189S), 375.
Cambridge Modern History (New York: The Macmillan Company, 1908), V, 445.
The Antecedents of American Public Accounting 7
sold out, quotations plummeted. Instead of everyone being a buyer,
everyone became a seller. As a result, the price shortly fell to £175,
while the stock of many smaller companies became worthless. 7
Parliament was called together on December 8, 1720, and at once
both houses proceeded to investigate the affairs of the company, the
lower house soon entrusting this task to a Committee of Secrecy. The
committee reported in February, 1721, on the activities of this com-
pany and its subsidiaries.
While there appears to be no actual authentication for other audit
reports covering many of the bankruptcies of this period, it is safe
to assume that many such reports were made.
By the turn of the nineteenth century the evolution of the ac-
counting profession had reached the point where the functions of
the practitioner could be enumerated. Some of these functions were:
Agent for houses in England and Scotland connected with bankruptcies
in Glasgow.
The winding up of dissolved partnership concerns and the adjusting of
partner's accounts.
The keeping and balancing of all account-books belonging to merchants,
shopkeepers, etc. . . .
The examining and adjusting of all disputed accounts and account books. 8
The Company Clause Consolidation Act of 1845 made provisions
for the audit of the accounts of companies regulated by act of
Parliament. This act provided that railroads appoint auditors and
that they call in outside accountants to assist them. It seems signifi-
cant that the references to "Accountants and Agents" or "Commer-
cial Accountants" whose duties were not very clear were no longer
made. 9
In 1868, the 1845 act was amended. The regulated railroads
were now required to submit audited financial statements to the
Board of Trade and stockholders. The auditor did not have to be
mid., vi, S3o.
8 Richard Brown, A History of Accounting and Accountants (Edinburgh and London: T. C and
E. C. Jack, 190S), p. 201.
°Ibid., p. 318.
\
8 History of Public Accounting
a stockholder but he did have to follow a prescribed form in pre-
paring the balance sheet and revenue statement. Some authorities
consider these acts a major factor in establishing the public account-
ing profession. Thus, during the "Railroad Mania" of the '40's, the
public accounting profession in England gained major recognition. 10
The Companies Act of 1862 offered new fields of lucrative em-
ployment for accountants and no doubt did much to attract many
ambitious young men to seek their fortunes in the profession. 11 The
cause for this can be found in Table A of the act of 1862.
The accounting clause of the 1862 act reads:
No dividends should be payable except out of the profits arising from the
business of the company. The directors should cause true accounts to be kep
and once a year should make out a balance-sheet and statement of income
and expenditures and present it at the meeting of the stockholders. 12
M
Once a year, at least, the accounts of the company should be
examined and the corrections of the balance sheet verified by one
or more auditors, usually already members of the company at the
time of their first appointment in general meeting. 13 The act set
forth the form of report which was to be used by the auditor after
he had examined the accounts and related vouchers to determine
whether the balance sheet, in his opinion, fairly reflected the state
of the company's affairs.
The main purpose of the Companies Acts was to establish a cer-
tain degree of public control through making public the circum-
stances of company formation, and to establish some check on the
directors' responsibilities in managing the company's affairs. An-
other was to protect the stockholders by requiring a committee of
stockholders to audit the records and financial statements of the
directors. 14
10 A. C. Littleton, Accounting Evolution to 1900 (New York: American Institute Publishing Co.,
Inc., 1933), p. 302.
""Accountants in England from the Nineteenth Century," The Accountant, XLVI (January, 1912),
261.
l2 Wiley Daniel Rich, Legal Responsibilities and Rights of the Public Accountant (New York:
American Institute Publishing Co., Inc., 1935), p. 236.
w Mary E. Murphy, "The Profession of Accountancy in England: The Public, the Government, the
Profession," The Accounting Review, XV (September, 1940), 323.
14 A. C Littleton, Accounting Evolution to 1900, p. 293.
The Antecedents of American Public Accounting 9
Because many unqualified accountants began to give advice to
these obligatory auditing committees, professional accountants de-
cided to seek some way of excluding such persons. In 1879, some
English practitioners decided to introduce a bill into Parliament
for the incorporation of the Institute of Chartered Accountants of
England, setting forth the functions performed by the accounting
profession. Before action could be taken on the bill a petition was
substituted stating:
That profession is a numerous one and their functions are of great and
increasing importance in respect to their employment in the capacities of . . .
also in the auditing of accounts of public companies and of partnership and
otherwise. 15
The charter of the Institute of Chartered Accountants in England
and Wales, granted May 11, 1880, provided that the applicants must
take an examination in auditing, this examination to be an applica-
tion of theory to actual cases. This section of the examination
probably arose out of the provisions in the Companies Acts re-
quiring that audits be made, and out of the desire of professional
accountants to insure that advisers to corporations should be quali-
fied to give advice.
Early Court Decisions Affecting Auditors
The first important English court case on the duties of an auditor
was the Leeds Estate Building and Investment Company vs. Shep-
herd, rendered by Justice Sterling in 1887. This case extended
the auditor's duties to inquiry into the soundness, not merely the
mathematical accuracy, of the figures included on the balance sheet.
The articles of incorporation of the Leeds Estate Building Com-
pany provided that the manager and the directors were entitled to a
bonus based on the amount of profits available for dividends. It
was therefore to the interest of the directors and manager to report
a large profit. They accomplished this by overstating the assets.
The balance sheet and profit and loss statements were certified by
^"History of Accountants and Accounting," The Accountant, XLVI (January, 1912), 261.
10 History of Public Accounting
the accountant without question after being presented to him by the
directors, even though the auditor was elected by the stockholders.
Dividends were illegally paid out of capital. After the company
went into liquidation, an action for damages was brought against
the auditor and the directors. The auditor maintained that he was
a servant of the directors of the company, but the judge rendered
the following opinion:
It was in my opinion the duty of the auditor not to confine himself merely
to the task of verifying the arithmetical accuracy of the balance-sheet, but to
inquire into its substantial accuracy, and to ascertain that it contained the
particulars specified in the articles of association (and consequently a proper
income and expenditure account) , and was properly drawn up, so as to
contain a true and correct representation of the state of the company's affairs. 16
In the Leeds case the decision made it clear that the auditor was
to check the records of the company from which the statements were
taken to satisfy himself that they reflect the operations of the busi-
ness. It was the auditor's responsibility to do more than just certify
the statements as to arithmetical accuracy.
Another prominent case concerning the definition of duties of the
public accountant with respect to a proper reflection of the values
of assets in the balance sheet was the London and General Bank
case in 1895.
The bank was organized for the purpose of making loans to a
group of building companies, known as the Balfour group. The
profits for the company consisted of the interest and commissions
from the loans and services to the builders.
For several years during the operations of the bank the major
portion of this capital had been advanced to four members of the
Balfour group on securities which were inadequately secured and
difficult of realization. The auditor of the bank, in his report to
the directors, repeatedly called the directors' attention to the pre-
carious financial condition of the bank. The auditor's report had
been in the form of a memorandum written on the balance sheet
with a statement that the balance sheet exhibited a correct view of
18 Wiley Daniel Rich, Legal Responsibilities and Rights of the Public Accountant, p. 17.
The Antecedents of American Public Accounting 11
the position of the bank. But in 1891 the report called the direc-
tors' attention to the financial condition of the bank and ended,
"We cannot conclude without expressing our opinion unhesitatingly
that no dividend should be paid this year." 17 The manager persuaded
the auditor to exclude this statement from his report.
The bank then proceeded to pay a dividend because the report
certified by the auditor was no different from those that had pre-
viously been given. These dividends were in fact paid out of capital,
not profits. The stockholders considered that the auditor was guilty
of misfeasance and took action against him.
The following are excerpts from the opinion of the court:
... an auditor has nothing to do with the prudence or imprudence of making
loans with or without security. . . . His business is to ascertain and state the
true financial position of the company at the time of the audit, and duty is
confined to that. . . . An auditor, however, is not bound to do more than
exercise reasonable care and skill in making inquiries and investigations. He
is not an insurer; he does not even guarantee that his balance sheet is accurate
according to the books of the company. . . . Such I take to be the duty of
the auditor; he must be honest— i. e., he must not certify what he does not
believe to be true, and he must take reasonable care and skill before he believes
that what he certifies is true. . . . Under these circumstances I am compelled
to hold that Mr. Theobald failed to discharge his duty to the shareholder
with respect to the balance sheet and certificate of February, 1892. 18
In the General Bank case the auditor certified statements without
taking exception or including a qualification in his report. The
court held this to be negligence in the performance of his duty
and established the principle that the auditor should only certify
what he has reason to believe to be true.
Another major case in which the English courts defined the duties
of an auditor was the Kingston Cotton Mill Company case. This
case will be discussed in a later chapter, but briefly the case per-
tained to the overstatement of inventories by the managers. It was
the decision of the court that the auditor had no reason to suspect
"Arthur W. Hanson, Problems in Auditing (New York: McGraw-Hill Book , Company, Inc., 1935),
p. S3.
ls Wiley Daniel Rich, Legal Responsibilities and Rights of the Public Accountant, p. 26.
12 History of Public Accounting
the dishonesty of the manager, who certified the amount of stock-in-
trade. The auditor clearly stated that he got the figures from the
manager. Furthermore, the auditor, in the absence of suspicion of
dishonesty, had no duty to check the figures on the value of in-
ventory as given by a competent officer of the business. 19
FUNCTIONS OF THE PUBLIC ACCOUNTANT
AND LAWS AFFECTING HIM
The first major recognition given the public accounting profes-
sion in cases involving dissolutions was in respect to the Sawbridge
Company in 1720, already mentioned. An accountant, Charles
Snell, made an investigation into the company's books at the request
of Parliament. Thus it is evident that at an early date accountants
were consulted in cases of bankruptcy. 20
A great commercial crisis occurred in Glasgow in 1777 as the
result of the previous year's revolt in the North American colonies,
with which part of the world the trade of the city was closely identi-
fied. The crisis afforded considerable business for the accountants
in Glasgow. Then came the bankruptcies of 1793, when more than
twenty banking companies failed. Accountants were commissioned
to settle the affairs of these banks and liquidate their liabilities. One
of them, Walter E. Maclone of Cathkin, Scotland, Merchant and
Accountant, was employed to settle some of the most important
bankruptcies which occurred during these crises. 21
Brown catalogs the functions performed by these early accounts
as follows:
Factor and trustee on sequestrated estates.
Trustee or factor for trustee of creditors acting under trust deeds.
' Factor for trustees acting for the heirs of persons deceased.
Factor for gentlemen residing in the country for the management of heritable
or other property.
Agent for houses in England and Scotland connected with bankruptcies in
Glasgow.
™Ibid., p. 34.
^"A History of the Accountancy Profession," The Accountant, XXI (April, 1895), 375.
^Norman E. Webster, "Public Accounting in the United States," in Fiftieth Anniversary Celebration
(New York: American Institute Publishing Co., 1937), p. 102.
The Antecedents of American Public Accounting 13
The winding up of dissolved partnership concerns and the adjusting of
partners' accounts.
The keeping and balancing of all account-books belonging to merchants,
shopkeepers, etc.
The making up of statements, reports, and memorials on account-books or
disputed accounts and claims for the purpose of laying before arbiters, courts,
or counsel.
The examining and adjusting of all disputed accounts and account-books.
The looking after and recovering old debts and dividends from bankrupt
estates.
And all other departments of the Accountant's business. 22
These functions seem to include almost all phases of accounting
operations. It is obvious that the accountant and lawyer had some
overlapping functions.
In the historic petition submitted to Queen Victoria in 1854,
there were several sections giving further information on the func-
tions of the accountant in cases of dissolution. An excerpt from
the petition stated that the accountant was expected to have "an
intimate acquaintance with the law of Scotland, and more especially
with those branches of it which have relation to the law of merchant,
to insolvency and bankruptcy. . . ." 23
The first major legislation in cases of bankruptcy which affected
the accountant's work was in 1849. Passing the final hearing in the
bankruptcy court was contingent upon a favorable report by the
official' assignee as to the accuracy of the accounts. It was not irreg-
ular then for accountants to be employed to insure correctness of the
statements. In the statements it was necessary to show the court
why the business was insolvent. Therefore, a statement of affairs
was finally used to give the court the required information. 24
Section 92 of the Companies Act of 1862 created the position of
official liquidator "for the purpose of conducting the proceedings
in winding-up a company," and in most cases a professional ac-
countant was appointed as liquidator. When one reflects that during
the twenty-two years following the passing of the act (that is, from
1862 to 1884) no fewer than 13,820 companies disappeared from the
^Richard Brown, A History of Accounting and Accountants, p. 202.
^Ibid., p. 208.
^A. C. Littleton, Accounting Evolution to 1900 (New York: American Institute Publishing Co.,
Inc., 1933), p. 280.
14 History of Public Accounting
register, it is easy to understand why the Companies Act of 1862 is
spoken of as "the Accountant's friend." 25 This is further seen in the
following quotation from the original act which reveals how this act
affected the public accountancy profession:
Upon the conclusion of the examination the Inspectors shall report their
opinion to the Board of Trade: Such report shall be written or printed, as the
Board of Trade directs.
. . . All expenses of and incidental to any such examination as aforesaid shall
be defrayed by the members upon whose application the Inspectors were
appointed, unless the Board of Trade shall direct the same to be paid out of the
assets of the Company, which it is hereby authorized to do. 26
The few years which followed passage of the act saw the failure
and collapse of many large joint-stock undertakings, notably that of
Overend, Gurney and Company, Ltd., and in 1866 several banks,
among them the Commercial Bank of India, the European Bank,
the Bank of London, and Agra and Materman's Bank. The cost of
these liquidations must have been enormous and produced, no
doubt, a rich harvest for the liquidators. In addition to their work
as liquidators, accountants were employed to audit the accounts of
the various companies which came into existence during the second
and third quarters of the nineteenth century. 27
The Bankruptcy Act of 1869, in abolishing the Official Assignees
in Bankruptcy and providing for the appointment of trustees to
distribute the debtor's estate, also brought grist to the accountant's
mill, as these positions were largely filled by professional account-
ants. 28 Creditors were given complete control if the majority of them
agreed on a plan. The creditors then proceeded to engage book-
keepers to handle the customary liquidation.
Not everybody was pleased with the accountants' work. In 1875
Mr. Justice Quain stated from the bench: "The whole affairs in
bankruptcy have been handed over to an ignorant set of men called
25 " Accountants in England from the Nineteenth Century," The Accountant, XLVI (January,
1912), 261.
^Statutes of the United Kingdom of Great Britain & Ireland, Passed in the 25th and 26th Years
of the Reign of Her Majesty, Queen Victoria (London: G. E. Eyre and William Spottiswoode, 1862),
p. 448.
^Richard Brown, A History of Accounting and Accountants, p. 326.
K The Public General Statutes, Passed in the 32nd and 33rd Years of the Reign of Her Majesty,
Queen Victoria (London: G. E. Eyre and William Spottiswoode, 1869), p. 696.
The Antecedents of American Public Accounting 15
accountants, which was one of the greatest abuses ever introduced
into law." This sweeping remark was, in the main, quite unjustified,
although it must be confessed that the opportunities offered by the
Bankruptcy Act of 1869, election of receivers by creditors, attracted
many persons who "styled themselves 'accountants,' but who pos-
sessed no qualification for their work, and who preyed in most
unscrupulous fashion on the unfortunate who fell into their
hands." 29
The procedure in bankruptcy of electing the receiver, as regulated
under the act of 1869, was altered by the act of 1883, by which re-
ceivers were appointed to administer bankrupt estates under the
control of the Board of Trade, and trustees, in practice, were elected
by the creditors in the case of large estates. 30
The public accounting profession in England received additional
impetus from the bankruptcy acts during the third quarter of the
nineteenth century. It seems that adverse business conditions had
much effect on the development of public accounting, just as did
prosperity.
A further reflection on the accountants' function in such matters
as bankruptcies is found in the charter of incorporation of the Eng-
lish societies in 1879. The following statement pertains to account-
ants' acting as receivers: "... and of receiving under decrees and of
trustees in bankruptcies or arrangements with creditors and in
various positions of trust under courts of Justice." 31
The apprentice working toward his final examination to be ad-
mitted to the profession in England and Ireland had to pass an
examination in bankruptcy, company, and arbitration law. Thus
the Chartered Accountant of either of these countries had to have a
thorough education in the field of bankruptcy before being admitted
to practice in his own name.
PROFESSIONAL STATUS
Combination Vocations
Charles Snell, who wrote the report for the Special Committee in
Parliament in 1721, was known as Writing Master and Accountant.
^"History of Accountants and Accountancy," The Accountant, XLVI (January, 1912), 261.
""A Hundred Years of Accountancy," The Accountant, XXVU (June, 1901), 39.
^"History of Accountants and Accountancy," The Accountant, XLVI (January, 1912), 261.
16 History of Public Accounting
It would seem that the inclusion of the "writing master" portion of
his title would mean that he performed functions other than those
of an accountant. Probably because of the high degree of illiteracy
at that time he wrote letters and rendered other literary services for
individuals. 32
In Edinburgh the accounting profession was more clearly as-
sociated with the profession of law. For many years the accountant's
work was carried on in the solicitors' offices. 33
There are instances of members of the Society of Writers to the
Signet practicing as accountants because of the overlapping of their
functions of that day. After the middle of the nineteenth century,
accountants were employed to do more and more public accounting
work in the form of audits and the handling of bankruptcy cases,
and the profession became distinctly separated from that of the
solicitor.
The petition to Queen Victoria in 1854 for the formation of a
Society listed the accomplishments of the accountant:
. . . the business of accountant, . . . not merely thorough knowledge of these
departments of business which fall within the province of the Actuary, but an
intimate acquaintance with the law of Scotland, . . . That in the extrication
of those numerous suits before the court of Session, which involve directly
and indirectly matters of accounting, an accountant is almost invariably
employed by the court to aid in eliciting the trust: That such investigations
are manifestly quite unsuited to such a tribunal as a Jury, yet cannot be
prosecuted by the court itself without professional assistance on which it
may rely, and the accountant, to whom in any case of this description a remit
is made by the court, performs in substance all the more material functions
which the Petitioners understand to be performed in England by the Masters
in Chancery: That accountants are also largely employed in Judicial Remits
in cases which are peculiar to the practice of Scotland, as for instance, in
Rankings and Sales, in processes of Court of Reckoning, Multiple poinding,
and others of a similar description: That they are also most commonly selected
to be Trustees on Sequestrated Estates, and under Voluntary Trusts, and in
these capacities they have duties to perform, not only of the highest responsi-
bility, and involving large pecuniary interests, but which require, in those who
undertake them, great experience in business, very considerable knowledge of.
^"A History of the Accountancy Profession," The Accountant, XXI (April, 1895), 375.
33 A. C Littleton, Directory of Early American Public Accountants (Urbana, Illinois: The Uni-
versity of Illinois, 1942), p. 7.
The Antecedents of American Public Accounting 17
law, and other qualifications which can only be attained by a liberal edu-
cation. . . . 34
Even in this early stage of the development of the profession there
were differences existing between the accountancy profession and the
legal profession. In the latter part of the nineteenth century the
Institute of England and Wales was concerned on several occasions
with instances of solicitors' encroaching on the functions of ac-
countants. One case specifically called to the Institute's attention in-
volves two London solicitors acting as auditors of the Law Union
Assurance Company. The following statement was made in regard
to this case:
We are not, of course, in a position to judge of the fitness of these gentle-
men to perform the responsible duties of their office; but we have little hesita-
tion in saying that the qualifications of the average solicitor for such an
appointment would be even less than those of the average amateur, who was
once considered sufficiently enlightened to undertake the audit of insurance
companies accounts, but whose place is now being rapidly taken by properly
qualified accountants, whose services cannot fail to prove of some use to the
companies for whom they act. 35
In the commercial city of Glasgow the function of accountant was
confounded with that of merchant. The accounting profession then
seems to have had its i origin as a distinct calling in commercial
circles, and it was not out of the ordinary for a man to be designated
Merchant and Accountant. When individuals advertised themselves
as "Accountants and Agents" the duties which they performed do
not seem to be clearly those of professional accountants. 36
When the original draft of the Institute in Scotland was drawn,
some of those present were not accountants. In fact a provision was
made so that those who had formerly practiced as accountants, but
who at the time acted as managers of life insurance companies,
^Richard Brown, A History of Accounting and Accountants, p. 208.
35 "Sblicitors Acting as Accountants," The Accountant, XVII (October, 1891), 709.
^Norman E. Webster, "Accountancy in the United States," in Fiftieth Anniversary Celebration,
p. 102.
18 History of Public Accounting
might be members. 37 Evidently these were men who had retired
from the accountancy profession and had accepted positions in
business.
It was not until about the last quarter of the eighteenth century
that accountants looked upon accountancy as an occupation sufficient
to engage their full attention and time. At the same time public ac-
countants were beginning to receive recognition by the public. By
1787, directories of various cities and towns were including the title
"Accountant." In the British Universal Directory of 1790 there are
five accountants advertised as Writing Master and Accountant, two
as Accountants and Agents, one as Commercial Accountant, and the
remaining one simply as Accountant. But the Post Office Directory
in London of that year included only one person's name under the
title of Accountant. In 1799 eleven accountants are included in
Holden's Triennial Directory, and from that time the number ap-
pears to increase steadily, with twenty-four names in the 1811 edition
and seventy-three in 1825. 38 The duties of these men as professional
accountants are not clear, but it seems that professional accountancy,
as understood today, existed in some form.
The first Directory of Edinburgh, published in 1773, contains the
names of seven persons who were designated as accountants. The
following year there were seventeen persons under the same heading.
The earliest separate list of accountants in Edinburgh is contained in
The British Almanack and Universal Scots Register for 1805. There
are seventeen names of accountants listed. A similar Glasgow direc-
tory appeared for the first time in 1783, and contained the names of
six accountants. 39
The first professional accountant in Scotland seems to have been
George Watson in 1676. In acting for several corporations, he was
known for the "diligence, faithfulness, and integrity with which he
conducted his business." 40 Watson was peculiarly suited for this
work, since he was taken into a large mercantile business after com-
pleting his education as an accountant and cashier. When he left
37 Arthur Lowes Dickinson, "Profession of the Public Accountant," The Accountant, XXXII (May,
1905), 650.
^"A Hundred Years of Accountancy," The Accountant, XXVII (January, 1901), 37.
^A. C Littleton, Directory of Early American Public Accountants (Urbana, Illinois: The Uni-
versity of Illinois, 1942), p. 7.
^Richard Brown, A History of Accounting and Accountants, p. 184.
The Antecedents of American Public Accounting 19
the business after twenty years, he was employed by the corporations
mentioned above. 41
Early Professional Organizations
In a discussion of the modern profession of accounting, Scotland
should occupy the place of priority for in no other country in the
world did it become so highly developed or so important relative
to other professions. The Chartered Accountant originated in Scot-
land, and there also can be found the oldest societies of public
accountants in existence. 42
The first step towards formation of a Society of Accountants in
Edinburgh took place on January 17, 1853, when Alexandria Weir
Robertson issued the following circular to fourteen practicing ac-
countants:
Several gentlemen connected with our profession have resolved to bring
about some definite arrangements for uniting the professional accountants in
Edinburgh, and should you be favourable thereto I have requested your at-
tendance in my chambers here on Thursday next, the 20th Inst., at 2 o'clock. 43
In response to this invitation, seven gentlemen assembled. At the
second meeting there were six more, and a proof of the constitution
was considered and amended.
When the third meeting was held on January 31, 1853, forty-seven
attended. Archibald Borthwick explained to those in attendance that
the ultimate object of the organization was to apply for a charter of
incorporation conferring on the group or institute the usual powers
and privileges. The institute was to consist of ordinary members
(gentlemen practicing as accountants in Edinburgh) and honorary
members (gentlemen who formerly practiced as accountants but now
were acting as managers of life insurance companies and held ap-
pointments from the courts). 44
^Ibid.
42 Arthur H. Woolf, A Short History of Accountants and Accounting (London: Gee and Company,
1912), p. 164.
^Richard Brown, A History of Accounting and Accountants, p. 203.
^Arthur Lowes Dickinson, "Profession of the Public Accountant," The Accountant, XXXII (May,
1905), 650.
20 History of Public Accounting
The annual meeting of the institute was held February 1, 1854;
President James Brown and the Council announced that, in their
opinion, the time had arrived to make application for incorporation
by royal charter. In May, 1854, the Council approved a draft of a
petition, which was signed after being approved by fifty-four mem-
bers, and was sent to the queen. The petition stated:
That the profession of Accountants, to which the Petitioners belong, is of
longstanding and great respectability, and has of late grown into very consider-
able importance: That the business of Accountants, as practiced in Edinburgh,
is varied and extensive, embracing all matters of account, and requiring for
its proper execution, not merely thorough knowledge of these departments of
business which fall within the province of the Actuary, but an intimate
acquaintance with the law of Scotland, and more especially with those branches
of it which have relation to the law of merchant, to insolvency and bankruptcy,
and to all rights connected with property: That in the extrication of those
numerous suits before the Court of Sessions, which involve directly and indi-
rectly matters of accounting, an accountant is almost invariably employed by
the court to aid in eliciting the trust: That such investigations are manifestly
quite unsuited to such a tribunal as a Jury, yet cannot be prosecuted by the
court itself without professional assistance on which it may rely, and the
accountant, to whom in any case of this description a remit is made by the
court, performs in substance all the more material functions which the Peti-
tioners understand to be performed in England by the Masters in Chancery:
That Accountants are also largely employed in Judicial Remits in cases which
are peculiar to the practice of Scotland, as for instance, in Ranking and Sales,
in processes of Court and Reckoning, Multiple poinding, and others of a
similar description: That they are also most commonly selected to be Trustees
on Sequestrated Estates, and under Voluntary Trusts, and in these capacities
they have duties to perform, not only of the highest responsibility, and involving
large pecuniary interests, but which require, in those who undertake them, great
experience in business, very considerable knowledge of law, and other qualifica-
tions which can only be attained by a liberal education: That in these circum-
stances, the Petitioners were induced to form themselves into a Society called
the Institute of Accountants of Edinburgh, with a view to unite into one
body those at present practicing the profession, and to promote the objects
which, as members of the same profession, they entertain in common; and
that the Petitioners conceive that it would tend to secure in the members of
their profession the qualifications which are essential to the proper performance
of its duties, and would consequently conduce much to the benefit of the
public if the Petitioners who form the present body of practicing accountants
in Edinburgh were united into a body corporate and politic, having a common
The Antecedents of American Public Accounting 21
seal, with power to make rules and by-laws for the qualification and admission
of members, and otherwise. 45
The Royal Warrant for the incorporation of the institute under the
name of the Society of Accountants in Edinburgh was granted by
Her Majesty's Court of St. James on October 23, 1854, and signed by
Lord Palmerston at the Queen's command. 46
The Edinburgh Society was soon emulated by the accountants in
Glasgow, who petitioned the crown on July 6, 1854, for the grant
of a royal charter. A royal warrant was given on March 15, 1855, for
the incorporation of the petitioners "and such other persons as might
be admitted as members, into one body politic and corporate" under
the name of The Institute of Accountants and Actuaries in Glas-
gow. 47 The charter contained a provision for the appointment of a
Board of Examiners
for the purpose of regulating and conducting such examinations of entrance
and others as the corporations might from time to time direct, and in such
manner as they may appoint in furtherance of the objects of the Societies, and
that the course of education to be pursued and the amount of general and
professional acquirement to be exacted from entrants should be such as the
corporations should from time to time fix. 48
In 1867 the Society of Accountants in Aberdeen was incorporated
by royal charter, along the lines of the other two Scottish societies.
In the interest of uniform instruction in accounting, the three
societies in Scotland decided that the rules for admission and the
standards of the examination should be the same, as well as the ap-
prenticeship service period and the terms of membership. With these
ideas in view, the societies entered into a joint agreement to con-
stitute a General Examining Board. This action led to their unifica-
tion, and to the adoption of the name of Chartered Accountant for
their members. 49 It took some time for the title to signify to the
public a professional accountant performing the functions of a
45 Richard Brown, A History of Accounting and Accountants, p. 208.
"Ibid.
* 7 Arthur H. Woolf, A Short History of Accountants and Accountancy, p. 165.
iS Ibid.
"Ibid.
22 History of Public Accounting
public accountant. But the significance of the name Chartered Ac-
countant grew in importance as the profession acquired the con-
fidence of the people of Scotland. 50
It seems worthy of note that these societies neither sought nor ob-
tained any privileges or monopoly of the accounting profession; the
crown charters simply conferred upon them a right to hold property
and execute deeds in the name of the society for the benefit of the
profession.
Having thus secured for accountants public recognition as a dis-
tinct profession, these societies steadily pursued their declared policy
of raising the educational standards and position of the profession
and of insuring that everyone becoming a member of a chartered
society should possess the qualification for those duties which had
come to be identified as the special work of the accounting profes-
sion.
It was not until some twenty-six years after the Chartered Ac-
countants came into existence in Scotland in 1 854 that some English
accountants secured their charter of incorporation. The first attempt
to organize the profession in England was made in Liverpool. The
Incorporated Society of Liverpool Accountants was organized on
January 25, 1870. In the same year, on November 29, the Institute
of Accountants was established in London. 51 These societies appear
to have been founded, following passage of the Bankruptcy Act of
1869, in an effort to protect the profession from those unqualified
men who had taken advantage of the inadequacy of previous laws
in calling themselves accountants, and had brought the profession
into bad repute.
Three similar societies were formed in rapid succession: the Man-
chester Institute of Accountants, formed on February 6, 1871; the
Society of Accountants in England, formed on January 11, 1873; and
the Sheffield Institute of Accountants, formed on March 14, 1877.
Like the London Society, these all had as their purpose to promote
the profession and up-grade the membership. 52
In the next several years the profession grew by leaps and bounds.
On November 29, 1879, an advertisement was inserted in the London
^Richard Brown, "Recent Proposed Legislation Relating to the Profession," The Accountant, XX
(July, 1894), 669.
^"History of Accountants and Accountancy," The Accountant, XLVI (January, 1912), 6.
^"Some Notes on the Profession of Accountancy," The Accountant, XXII (October, 1896), 843.
The Antecedents of American Public Accounting 23
Gazette by the Council of the Institute of Accountants stating that
they intended to apply to Parliament for leave to introduce a bill for
the incorporation of the Institute. A conference between represen-
tatives of the various English societies was held, and a bill was
drawn up for presentation to Parliament in 1879, but eventually a
petition for a charter of incorporation was substituted. The petition
stated:
That the profession is a numerous one and their functions are of great and
increasing importance in respect to their employment in the capacities of
liquidators in the winding up of companies and of receiving under decrees
and of trustees in bankruptcies or arrangements with creditors and in
various positions of trust under courts of Justice as also in the auditing of
accounts of public companies and of partnership and otherwise. 53
The formal grant of the charter was made May 11, 1880, incor-
porating the existing societies into one group for united action. It
was named the Institute of Chartered Accountants in England and
Wales. Adequate provision was made for admittance of other persons
for membership provided they possessed certain qualifications. 54
Various other societies have arisen in England. The most outstand-
ing of these is the Society of Incorporated Accountants and Audit-
ors, which was incorporated December 29, 1885, under a license
from the Board of Trade. Membership was extended on application
during the early years of its existence. At least until 1902 no exam-
ination was required, but the new rules of that year required exam-
inations similar to those of the Institute of Chartered Accountants
in England and Wales. 55 Even so, this society has grown to consider-
able size. In the words of Waterhouse, the President of the English
Institute, it is "a body framed on principles similar to the Institute,
and having in the public estimation the reputation of having placed
their members on a higher level than those who are outside their
number." 56
^"History of Accountants and Accountancy," The Accountant, XLVI (January, 1912), 259.
^Arthur L. Dickinson, "Profession of the Public Accountant," The Accountant, XXXII (May,
1905), 651.
txibid., p. 652.
^Richard Brown, "Recent Proposed Legislation Relating to the Profession," The Accountant, XX
(July, 1894), 670.
24 History of Public Accounting
The Institute of Chartered Accountants in Ireland was incor-
porated by royal charter on May 14, 1888, with thirty-one members,
mostly practicing accountants in Dublin, Belfast, and Cork. 57 The
conditions for membership included a preliminary examination in
general education, five years' service "under articles" with a practis-
ing Chartered Accountant, and an intermediate examination.
Professional Standards
The institute that was formed in Edinburgh in 1853 admitted
active practitioners and honorary members. This practice was fol-
lowed until examinations were established for selection of new
members.
The stinging criticism by Judge Quain in 1875 that the settlement
of bankruptcies had been "handed over to an ignorant set of men
called accountants" was combatted by the professional organizations
that had been and were to be formed. Once recognition was given
through government charters, the organizations followed a declared
policy of improving the educational standards of the profession.
Self-policing was carried further in that the members of the public
accounting profession were required to abide by strict rules of ethical
conduct.
The charter of the institute in England provided that those who
had been in continuous practice as a public accountant for five years
from January 1, 1879, were to be admitted as Fellow Chartered Ac-
countants (F.C.A.), and everyone who had prior to the date of this
charter been for three years in public practice or for five years em-
ployed as a public account-clerk was to be admitted as Associate
Chartered Accountant of the Institute (A.C.A.). 58 After the initial
registration it was necessary for the aspirant to membership to be ap-
prenticed to a member of one or the other of the Associations of
Chartered Accountants for a term of five years. The apprenticeship
was considered to be so important that members were offered pre-
miums varying from $250 to $2,500 for the privilege of working in
their office: the "articled clerk," as he was called, received no salary
during this term of apprenticeship. 59
57 Richard Brown, A History of Accounting and Accountants, p. 250.
58 Richard Brown, "Recent Proposed Legislation Relating to the Profession," The Accountant, XX
(July, 1894), 669.
5B T. Savage Smith, "The Education of Accountants: What They Ought to Learn, and How They
Are to Learn It," The Accountant, XX (December, 1894), 202.
The Antecedents of American Public Accounting 25
During the early years of the Society of Accountants and Auditors
no examination was required. The applicant could be admitted to
membership if his application was approved by the members. This
situation was corrected in 1902 with the setting up of an examination
similar to the one given by the institute of Chartered Accountants
in England and Wales.
Training in England and Scotland
In 1676 George Watson, having served an apprenticeship to a mer-
chant, was sent from England to Holland "for his further improve-
ment in merchandising, and particularly for his learning bookkeep-
ing, which then was a very rare accomplishment." 60 Even though
Watson was called an accountant he did not spend all his time at this
pursuit. As has been mentioned, men did not devote their entire
time and energy to the accountancy profession until the latter part
of the eighteenth century.
The Edinburgh society had a provision in the charter which
made the educational requirements a matter for the society to
determine.
The societies attached special importance to practical experience,
but formal education was also desired. Apprentices were required
to attend university law classes. In fact one of the conditions of
membership was "that such University teaching as bear on the duties
of an accountant should be taken advantage of." 61
A Chartered Accountant's Students' Society was formed in Edin-
burgh in 1886. Each winter a series of lectures and discussions on
professional subjects was given for the education of members and
apprentices.
A resolution was passed by the council of the institute in England
at a meeting on July 12, 1893, establishing a centralized library
which would be adequate to meet the needs of the profession. The
librarian was to keep the library open until 8 o'clock in the evening
for the benefit of those wanting to use it. As one accountant wrote,
In view of the great advantages and facilities now offered to practitioners
as well as students, it is only reasonable that the profession should look in
^Richard Brown, A History of Accounting and Accountants, p. 183.
61 Richard Brown, "Recent Proposed Legislation Relating to the Profession," The Accountant, XX,
(July, 1894), 669.
26 History of Public Accounting
return, not only for a warm appreciation of the liberality shown in the action
of the Council, but also for a marked improvement in the position occupied
by London students in the pass-lists on the Institute Examinations. 62
When the Edinburgh society obtained its royal charter, one of the
provisions called for the appointment of a board of examiners. The
purpose of this board was to give such examinations as were felt
necessary in furtherance of the objectives of the society and to deter-
mine those eligible for admission. 63 In providing for examinations
the Edinburgh society was following the precedent set by the Uni-
versity of Milan, about a hundred years before, that only its grad-
uates could be recognized as practicing accountants, and then only
after passing an examination.
The three societies in Scotland set up uniform admission require-
ments, including standard examinations, and established a general
board of examiners. One of the conditions of membership was
"That the diligence and acquirements of the apprentice should be
tested by examination." 64
The examinations were divided into three parts. The preliminary
section embraced the normal educational subjects, the intermediate
section covered advanced mathematics and professional knowledge;
the third was a final examination covering law, actuarial science,
political economy, and four papers on the general business of an ac-
countant, embracing bookkeeping and all forms of accounts, audit-
ing, bankruptcies, trusts, factorships, apportionments, administra-
tion and liquidation of companies, and judicial and private refer-
ences, remits and profits. 65
Before being articled to a member of the Institute of Chartered
Accountants of England, the candidate was required to pass a pre-
liminary examination on general education; an intermediate exam-
ination in bookkeeping and accounts, auditing and liquidation; and
a final examination in these subjects with the addition of bankruptcy,
company, mercantile, and arbitration law. The device of the insti-
tute's seal, Justice, and the motto Recte numerare, also show that
the aims of the profession were such as to require that all candidates
•E'The Library of the Institute," The Accountant, XIX (December, 1893), 956.
^Arthur H. Woolf, A Short History of Accountants and Accounting, p. 165.
"Ibid., p. 165.
^Richard Brown, A History of Accounting and Accountants, p. 215.
The Antecedents of American Public Accounting 27
for membership be high principled as well as able to pass the exam-
ination. 66 The announced objectives of the institute were stated
to be:
The elevation of the profession of Public Accountants as a whole, and the
promotion of their efficiency and unselfishness, by compelling the observance
of strict rules of conduct as a condition of membership, and by setting up a
high standard of professional and general education and knowledge. 67
In 1894 one author considered the following significant in the
preparation of examinations and in preparing for them:
There was plenty that could be learned from text books for the legal subjects
of the examinations, but the more important and the more difficult are those
of Bookkeeping, Accounts, and Auditing. It was felt that in these areas,
theory held but practical experience was important and whenever possible
the theory should be tested by comparison to actual cases. The courses of
lectures on bookkeeping and the legal subjects associated with the Student
Society were very useful in preparing for this examination. 68
The conditions for membership in the Irish institute included a
preliminary examination in general education, an intermediate
examination in bookkeeping, auditing, executorship accounts, li-
quidation, bankruptcy, company, partnership, arbitration law sci-
ence—which was approximately what was covered in the examination
given by the English institute.
The united societies of Scotland placed special importance on
practical experience which the apprentice received in the office of an
accountant. This has been an essential requirement for admission
into any of the societies. The condition of membership was usually
stated in words such as these:
T. Savage Smith, "The Education of Accountants: What They Ought to Learn and How They
Are to Learn It," The Accountant, XX (December, 1894), 202.
67 C W. Haskins, "History of Accountancy," The Accountant, XXVII (June, 1901), 699.
^T. Savage Smith, "The Education of Accountants: What They Ought to Learn and How They
Are to Learn It," The Accountant, XX (December, 1894), 204.
28 History of Public Accounting
That a full term of apprenticeship, under conditions potent to the society,
should be served with a master whom the Society knew to be in a position
to impart a thorough practical knowledge of the profession. 69
The following was what an accountant should have learned
before becoming a Chartered Accountant in 1894:
With the preliminary examination passed and the apprenticeship arranged,
it would seem worthwhile to look into the duties of an articled clerk in an
office. In the first few months, the student should learn the methods adopted
by his principal for the regulation and management of the office, beginning
even with the smallest details in the waiting room. He should know the sta-
tionery arrangements, the registration of the boxes or parcels of clients'
papers, and should generally make himself acquainted with all office rules.
This is a time for gathering methodical information which will always be
useful. Next there is usually much to be learned at this early time in writing
legibly and neatly, and in the equal ruling of double lines.
The first two years should be very busy ones, but definite examination reading
may be left until the third year. The knowledge obtained now is not to be
found mentioned in the syllabus of the examinations. "Readiness" and "Tact"
are the points to be aimed at. Public Accountants are continually in personal
contact with their clients, with the gentlemen of other professions and with
practical businessmen of great experience. It is necessary, therefore, that the
student should make himself somewhat acquainted with the ways in which the
general business world is going around him. He should visit the Law Courts
at the time of assizes, go to various Government Offices, banks and such like
places as opportunity offers, and so get a knowledge of the red-tape formalities
attending the transaction of their business. He should attend public meetings
of all kinds: company, bankruptcy, ratepayers, political, debating, literary,
and in fact, gatherings of all sorts. There will be much to notice; the arrange-
ments for holding the meeting, the practice usually used at each kind of
opening, the selection of speakers, the forms of the resolutions, and how they
are brought before the meeting. 70
The accountant in ordinary business life meets men of all classes and varied
circumstances. He must study character and learn to be quite at ease, and
with his mind clear at all times with anybody. He will learn to be always
refined and courteous, and then he will be able to mix with all groups.
fl9 Richard Brown, "Recent Proposed Legislation Relating to the Profession," The Accountant, XX
(July, 1894), 669.
70 T. Savage Smith, "The Education of Accountants: What They Ought to Learn and How They
Are to Learn It," The Accountant, XX (December, 1894), 202.
The Antecedents of American Public Accounting 29
Politeness is not to be kept for most profitable clients only. It has yet to be
learned by many professional men that firmness is possible without violent
verbal expression.
Honorary work on committees or as secretary is good education and experi-
ence for a young member of the profession. There is scope for individual
effort, and if the office is taken up with energy and genuine interest the labor
will be more than repaid by the pleasure afforded to say nothing of the value
of the experience.
Completeness in office work is deserving of remark. While a "junior" the
student will often be set to do some small piece of work; such as a portion of
an audit or some small investigation. But before starting on any such work,
it is well for him to ask his "senior" to explain the object of the work, so
that he may clearly appreciate what is wanted. After a short explanation as
to the reason why, gives interest to the employment and the work will be more
trustworthy.
After the apprentice takes the intermediate examination, the following two
years the work of the student is of a more advanced nature, and gives increased
facilities for observing the mode of dealing practically with many important
matters. He will, as a senior, learn to apportion work among his staff in a way
to secure thoroughness and celerity. He will be preparing Profit and Loss
Accounts and Balance Sheets, and then endeavor to state the facts in the
clearest manner possible. 71
The long apprenticeship and the types of work carried out by the
student during his term would not seem to be very attractive to any
young men except the very serious and determined. To say the least,
it would appear that the apprenticeship period made it rather diffi-
cult to obtain a Chartered Accountant's certificate. But once the
certificate was issued, the name of "accountant" with or without a
qualifying prefix of "public" or "professional" was generally re-
placed by the more* specific title of Chartered Accountant. 72
Society Activities
Once the societies were established it is of interest to examine
their policies as expressed by the kinds of services they performed
for their members and for the profession. One society, it has been
noted, scheduled annual lecture series on professional subjects.
^Ibid., p. 204.
72 "Public Accountant's Work," The Accountant, XVII (June, 1891), 585.
30 History of Public Accounting
In 1896 the three Scottish societies began the publication of an
annual Directory of Scottish Chartered Accountants, and since 1897
they have issued The Accountants' Magazine, a monthly journal,
which is the authoritative publication of accountancy in Scotland. 73
The Accountant, a newspaper, was established in 1847 after the
formation of the Societies of Accountants in England. This paper
was at first published monthly, but after a few months it became a
weekly, in which form it is still being issued. It circulates widely
throughout the world. 74
In 1893, a library was established in London by the Institute. This
library was opened in a further effort to make available to the stu-
dent and the practioner accounting information and reference publi-
cations.
The societies became active in jurisdictional disputes, which have
arisen frequently in the history of accountancy. Mention of one is
made in the late nineteenth century, when a complaint was brought
to the attention of the Institute that solicitors were performing the
functions of an auditor. The qualifications of these men to perform
an audit were immediately questioned by the profession.
SUMMARY
After a study of the development of the profession in England,
Ireland, and Scotland, it is readily apparent that the profession in the
United States has a rich inheritance of European tradition. The pro-
fession in these countries received its beginning in the field of
auditing. By the middle of the nineteenth century provisions had
been made for the audit of companies regulated by Parliament. Ac-
countants gained additional recognition when the Companies Act
of 1862 was passed, stating that capital must be separated from profits
and that the companies' books must be audited regularly. Another
act which further enhanced the standing of the profession was the
Bankruptcy Act of 1869. The court decisions based on these acts
further defined the responsibilities of the auditor.
During the third quarter of the nineteenth century the profession
in England, Scotland, and Wales was organized on a national level.
78 Wilmer L. Green, A History and Survey of Accounting (Brooklyn, New York: Standard Text
Press, 1930), p. 200.
74 "A History of the Accountancy Profession," The Accountant, XXI (April, 1895), 376.
The Antecedents of American Public Accounting 31
The societies established in these countries were functioning and
furthering the profession by improved educational standards. The
major activities of the public accountant were in the fields of audit-
ing, bankruptcies, receiverships, and as a business consultant on these
and other matters. But now attention must be given to the subject
of public accounting in the United States.
CHAPTER III
Definitions of American Public Accounting
Public accounting has developed rapidly in the United States,
being— from a legal point of view— only sixty-four years old. Since
1896, when the first legal recognition was given the profession, ap-
proximately seventy thousand certified public accountant certificates
have been issued by examination, waiver and reciprocity. Of these,
about sixty thousand were issued as the result of official (formal) ex-
aminations. About thirty-five thousand certified public accountants
are now practicing in this country. The remainer of those now liv-
ing are in business and industry, government, teaching, or have re-
tired from active practice.
In addition, there are probably several times as many noncertified
as certified public accountants. The noncertified public accountant
is licensed in those states which have enacted regulatory legislation
affecting public accountants. In other states the noncertified public
accountant practices as does the certified public accountant but does
not have a license from the State Board of Accountancy.
The certified public accountant is subject to stricter regulation.
After meeting certain requirements of age, education, and expe-
rience, and after passing the examination of the State Board of Ac-
countancy, he is licensed to practice in the state where he lives or
maintains a public accountancy office. The requirements vary con-
siderably in different states.
In some states waiver certificates were issued immediately after
the enactment of the original C.P.A. law to those accountants in prac-
tice who met the requirements set down by the State Board. These
waiver certificates were issued to those accountants who were prac-
ticing as public accountants prior to the enactment of the law so
that they would not be deprived of their means of making their
livelihood. Reciprocity certificates may be given to those practicing
in a state other than the state in which they are licensed provided
they comply with the reciprocity clause of the law of that state.
Definitions of American Public Accounting 33
Even though professional examinations have been given for public
accountants since 1896, professional accountancy is older; its an-
tecedents in this country go back some seventy or eighty years. Stand-
ard examinations for admission to the profession were established in
1917 by the American Institute. In 1924, the last state and territory
passed laws providing for the licensing of certified public account-
ants.
DEFINITION AND DISCUSSION OF TERMS
In order that the reader may understand what the profession of
public accountancy encompasses, some discussion of definitions will
be useful.
Record keeping is the maintenance of any written evidence of past
transactions, not necessarily kept on the basis of a common denomi-
nator or coordinated in any manner.
Bookkeeping is a method of classifying financial transactions in
accordance with a system, recording these facts in terms of money as
a common denominator, and arranging the data in an orderly
manner in the books and accounts of the business, where they are
readily available for analysis.
Although the recording of financial data, as in bookkeeping, is a
separate and distinct function and is one of the phases or branches
of accounting, accounting proper begins after the routine transac-
tions have been recorded. The art of accounting begins where book-
keeping leaves off; its purpose is explanatory. Accounting draws
upon the financial data recorded in the bookkeeping process to
interpret the condition of the business enterprise. Accounting, then,
is the process of recording, classifying, analyzing, presenting, inter-
preting, and reviewing financial information based on a common
denominator, money. Normally, the responsibility for performing
these functions is management's and the ultimate results are the
representations of management.
In 1940, the Committee on Terminology of the American Institute
of Accountants defined accounting as
the art of recording, classifying, and summarizing in a significant manner, and
in terms of money, transactions and events which are, in part at least, of a
financial character, and the results thereof. 1 J
1 Committee on Terminology, Accounting Research Bulletin No. 7. (New York: American Institute
Publishing Co., Inc., 1940), p. 59.
34 History of Public Accounting
This definition was criticized by many members of the profession
because it was not broad enough. 2 As a result, in its research bulletin
published the next year, the committee added the following words
to the definition: "... of a financial character, and interpreting the
results thereof." 3 In its final form, the committee's definition ap-
peared as follows:
Accounting is the art of recording, classifying and summarizing in a signifi-
cant manner, and in terms of money, transactions and events which are, in
part at least, of a financial character, and interpreting the results thereof. 4
The terms public accountant and public accounting must also be
defined. In 1886, before accounting had any legal recognition, The
Office, a business periodical, gave the following definition of public
accountant:
The functions of the expert accountant are, perhaps, less understood by the
business community at large than it would be well to have them. They may be
summed up under several heads; planning and remodeling books so as to adapt
them to special requirements; second, auditing books and verifying the balance
sheets; third, adjusting and closing books and accounts which are in a tangle.
Under the first head the expert occupies a commanding position as com-
pared with the ordinary bookkeeper, from the fact that he has wide and
varied experience, and accordingly can do more than even an equally competent
man who has been restricted to ordinary lines of practice. Under the second
head, the expert's systematic training is a continuous safeguard against errors
and frauds, and a satisfaction as well to those in charge of the cash as to those
interested in the profits. Under the third head, the expert sees that all questions
of depreciation, renewals, drawbacks, doubtful debts and other contingencies
are duly considered, while under the fourth head his trained and practical skill
finds clues in a mass of confusion, and soon determines the shortest way out. 5
After the passage of the first certified public accountant law, in
New York, there was new reason to define the term because as far
Hbid., p. 61.
Hbid., No. 9 (1941), p. 81.
Hoc. cit., p. 81.
5 Norman Webster, "The Meaning of 'Public Accountant'," The Accounting Review, XIX (October,
1944), 366.
Definitions of American Public Accounting 35
as it is known this law included the term ''Certified Public Ac-
countant" for the first time in any statute.
The definition in the 1896 law was as follows:
The public practice of accountancy within the meaning of this article is
defined as follows: A person engages in the practice of accountancy who, holding
himself out to the public as an accountant, in consideration of compensation
received, or to be received by him, offers to perform or does perform, for other
persons, services which involve the auditing or verification of financial transac-
tions, books, accounts, or records, or the preparation, verification or certification
of financial accounting and related statements intended for publication or for
the purpose of obtaining credit, or who, holding himself out to the public as an
accountant, renders professional services or assistance in or about any or all
matters of principle or detail relating to accounting procedure or the recording,
presentation or certification of financial facts or data. 6
The Public Accountant, a publication of the Pennsylvania Insti-
tute of Certified Public Accountants, carried an editorial in its issue
of January 15, 1900, under the title "What Is a Public Accountant?"
Answers from some twenty-nine accountants from eight cities were
cited. Some of the replies are of interest here.
A public accountant is one engaged professionally in the practice of ac-
countancy; the term accountancy being understood to cover all forms of investi-
gations of accounts for the determination of financial conditions, detection of
frauds or prevention thereof, or for whatever purpose data obtained from the
accountants may be required.
—William M. Lybrand, Philadelphia.
A public accountant is a man fearless and unprejudiced, with the ability to
look at both sides of a question; one who will not allow his honest opinions to
be changed by client or adverse party; who dictates and is never dictated to;
who places his devotion to his profession above the opportunities for gain by
questionable means.
—Robert H. Montgomery, Philadelphia.
^Accountancy Law Reporter (New York: Commerce Clearing House, 1941), p. 4,003.
36 History of Public Accounting
... A professional accountant, whose services are available to the public for a
fee or per diem remuneration, as may be arranged. To be successful he must be
honest, diplomatic, fearless, versatile, indefatigable, experienced, perspicacious
and skilled in his craft.
—George Wilkinson, Chicago.
One who is expert in accounts and so entirely familiar with the science of
bookkeeping that he can readily apply the principles of that science to the re-
quirements of any business by the most practical and direct methods. One who
is fitted by education and experience to examine accounts.
—Francis E. Beck, San Francisco.
The public accountant is the consulting physician of finance and commerce.
He understands the anatomy and physiology of business and the rules of health
of corporations, partnerships and individual enterprises. He diagnoses abnormal
conditions, and suggests approved remedies. His study and interest is the sound-
ness of the world of affairs.
—Charles W. Haskins, New York.
The ideal public accountant is he who, without trenching on existing author-
ity, systematically examines the accounts and methods of business of the insti-
tution in which his patron is interested; renders an intelligible certified report
of its financial condition; and, if necessary, suggests a safer or more economical
method of accounting.
-Elijah W. Sells, New YorkJ
A list of definitions of public accounting would not be complete
without considering some of those found in the present statutes of
some of our states. The following definitions are presented in the
order in which the laws were passed.
Illinois Law
Except as provided in Sections 10, 11 and 12, a person, either individually, or
as a member of a partnership or an officer of a corporation shall be deemed to
be in a practice as a public accountant, within the meaning and extent of this
Act:
7 Norman Webster, "The Meaning of Public Accountant," The Accounting Review, XIX (October,
1944), 366.
Definitions of American Public Accounting 37
(a) Who, except as an employee of a public accountant, holds himself out to
the public in any manner as one skilled in the knowledge, science and practice
of accounting, and as qualified and ready to render professional service therein
as a public accountant for compensation; or
(b) Who maintains an office for the transaction of business as a public ac-
countant; or
(c) Who offers to prospective clients to perform for compensation, or who
does perform on behalf of clients for compensation, professional services
that involve or require an audit, examination, verification, investigation or
review of financial transactions and accounting records; or
(d) Who prepares or certifies for clients reports on audits or examination of
books or records of account, balance sheets, and other financial, accounting and
related schedules, exhibits, statements, or reports which are to be filed with a
court of law or equity or with any other governmental agency, or for any other
purpose; or
(e) Who, in general or as an incident to such work, renders professional
assistance to clients for compensation in any or all matters relating to account-
ing procedure and to the recording, presentation and certification of financial
facts or data. 8
Georgia Law
For the purpose of this law a public accountant shall be defined as a person,
firm or corporation having an established place of business and offering to
perform for the general public any and all general accounting services. 9
Vermont Law
A person who is a citizen of the United States or who has duly declared his
intention of becoming such citizen, who is a resident of the state, who is over
the age of twenty-one years, of good moral character and a graduate of a high
school with a four-year course or has an equivalent education, who has had two
years' experience in public accounting, or such experience in general account-
ing as the board may determine as equivalent to such two-year experience and
who has received from the state board of accountancy a certificate of his qualifi-
cations to practice as an expert public accountant, shall be styled and known as
a certified public accountant. 10
Accountancy Law Reporter, p. 2,108.
°Ibid., p. 1,908.
10 Ibid., p. 5,304.
38 History of Public Accounting
North Carolina Law
A person is engaged in the public practice of accountancy who holds himself
out to the public as an accountant and in consideration of compensation re-
ceived or to be received offers to perform or does perform, for other persons,
services which involve the auditing or verification of financial transactions,
books, accounts, or records, or the preparation, verification or certification of
financial accounting for publication, or renders in or about any and all matters
of principle or detail relating to accounting procedure and systems or the record-
ing, presentation or certification and the interpretation of such service through
statements and reports. 11
Wisconsin Law
A person shall be deemed to be in practice as a public accountant, within the
meaning and intent of this chapter:
(1) Who holds himself out to the public in any manner as one skilled in the
knowledge, science and practice of accounting, and as qualified and ready to
render professional services therein as a public accountant for compensation; or
(2) Who maintains an office for the transaction of business as a public ac-
countant, or who, except as an employee of a public accountant, practices
accounting, as distinguished from bookkeeping, for more than one employer; or
(3) Who offers to prospective clients to perform for compensation, or who
does perform on behalf of clients for compensation, professional services that
involve or require an audit or certificates of financial transactions and account-
ing records; or
(4) Who prepares or certifies for clients reports of audits, balance sheets,
and other financial, accounting, and related schedules, exhibits, statements or
reports which are to be used for publication or for credit purposes, or are to
be filed with a court of law or with any other governmental agency, or for any
other purpose; or
(5) Who, in general or as an incident to such work, renders professional
assistance to clients for compensation in any or all matters relating to account-
ing procedure and the recording, presentation and certification of financial
facts.
(6) Every member of a partnership and every officer and director of a cor-
poration who, in such capacity, does any of the things enumerated in subsection
(1) to (5) of this section, shall be declared to be in practice as a public ac-
countant. 12
^Ibid., p. 4,103.
™Ibid., p. 5,703.
Definitions of American Public Accounting 39
low a Law
The term accountant includes all persons engaged in the practice of ac-
counting, within the meaning and intent of this chapter, who, holding them-
selves out to the public as qualified practitioners, and maintaining an office
for this purpose, either in their own names, or as office managers and/or as
managing officers of assumed name, association or corporation perform for
compensation, on behalf of more than one client, a service which requires the
audit or verification of financial transactions and accounting records, the prepa-
ration, verification and certification of financial, accounting, and related state-
ments for publication or for credit purposes; and/or who in general and
incidental to such work, renders professional assistance in any and all matters
of principle and detail concerning accounting procedure and the recording,
presentation and certification of financial facts. 13
Texas Law
A person engages in the practice of public accountancy within the meaning
of this act who, holds himself out to the public as a public accountant, in
consideration of compensation received or to be received by him, offers to
perform or does perform, for other persons, services which involve the auditing
or examination of financial transactions, books, accounts, or records, or the
preparation of, or the reporting over his signature on financial, accounting,
and related statements. 14
Alabama Law
Any citizen of the United States, residing or having a place for the regular
transactions of business in the State of Alabama, being over the age of twenty-
one years, of good moral character, and who shall have received from the state
board of public accountants as hereinafter provided, shall be styled or known as
a certified public accountant, and it shall be unlawful for any other person
or persons to assume such title or use any letters, abbreviation or words to
indicate that such a one using same is a certified public accountant. 15
District of Columbia Law
For the purpose of this chapter a public accountant is hereby defined as a
person skilled in the knowledge and science of accounting, who holds himself
™Ibid., p. 2,304.
■"Ibid., p. 5,103.
™lbid., p. 1,101.
40 History of Public Accounting
out to the public as a practicing accountant for compensation, and who main-
tains an office for the transaction of business as such, whose time during the
regular business hours of the day is devoted to the practice of accounting as a
professional public accountant. 16
Tennessee Law
. . . for the purpose of this Act the term public "accounting" shall mean:
Holding oneself out to the public in any manner as being one skilled in the
knowledge and science of accounting and performing the work of an accountant
for more than one employer on a fee basis, or otherwise, in any of the following
services; auditing, devising or installing accounting systems; making examina-
tions or investigations on matters relating to accounting; compiling tax returns;
advising taxpayers in connection with their rights and liabilities under such
federal and state taxing statutes as entail or are based on accounting procedure;
representing taxpayers before governmental departments of the State or the
United States in matters pertaining to taxes; preparing financial statements,
schedules, reports, and exhibits for publications, credit purposes, use in courts
of law and equity or other purposes. Provided nothing contained herein shall
be construed to prohibit attorneys in the course of their legal practice from
performing any of the above enumerated services. 17
The Committee on Terminology defined public accounting as:
The practice of this art [accounting] by men whose services are available
to the public for compensation. It may consist in the performance of original
work, in the examination and revision of the original work of others (auditing) ,
or in rendering of collateral services for which a knowledge of the art and
experience in its practice create a special fitness. 18
These definitions are cited at such great length to illustrate how
the statutes of states differ. The Texas law defines public account-
ing in terms of the auditing function entirely, whereas the Georgia
law defines it in terms of the performance of any and all general
accounting services for the public. Just what is meant by the term
™Ibid., p. 1,703.
-"Ibid., p. 5,004.
"Committee on Terminology, Accounting Research Bulletin No. 7, p. 59.
Definitions of American Public Accounting 41
"general accounting services" is not clear. But most of the laws of
the several states emphasize the auditing phase of public accounting
and the verification of financial statements. The prime exception
to this restrictive definition is the one given in the Tennessee law.
Here the definition extends the functions of a public accountant to
include the preparation of income tax returns and the rights of the
accountant to represent his client in such matters. This definition
seems to be much wider in its scope than any included in other
state laws.
Public accounting, then, for purposes of this study, will mean the
performance of accounting services for several clients on a fee basis,
including such functions as auditing (verifying), installation and
revision of accounting systems, preparation of income tax returns
(when related to accounting procedures), and representing clients
before governmental agencies on tax matters related to accounting.
The major distinction between accounting and public accounting
is that the public accountant performs these services for several
clients whereas in commercial or industrial accounting the services
are performed for one employer.
In some states there are "Public Accountant" provisions in the
accounting law. These usually permit the public accountant, not
certified, to perform all of the functions of a certified public ac-
countant except verifying financial statements. Then, too, the gov-
ernmental agencies do not permit some "P.A.s" to represent their cli-
ents on tax questions or in other related accounting matters which
may come before an administrative agency, without an examination.
On the other hand, the certified public accountant has the right to
practice public accounting in his own name after having been given
a license to practice by the State Board of Accountancy.
CHAPTER IV
The Emergence of Public Accountinj
in the United States, 1748-1895
Most of the histories of accounting begin with Assyria and Baby-
lonia, leap to Italy in the days of the well-known Renaissance tutor,
Pacioli, then hurry across Europe to devote their remaining space
to the origin and growth of public accountancy in Great Britain.
By the time the histories have covered the period from the South
Sea Bubble to the organization of the British societies during the
third quarter of the nineteenth century, the authors have exhausted
their space, and give but little thought to the United States. The
present work follows a different scheme, devoting its attention to
this country. This chapter is the first of several which trace the
course of accounting in the United States down to recent times.
The story of the accountants who blazed the trails for the ac-
counting profession in our country can only be deduced from brief,
infrequent references. Many of these early accountants had their
training in England.
This chapter is devoted to what may be considered the ancient
history of the American profession. The date 1895 was chosen to
close this period, as marking the end of an era lacking in legal
recognition for the profession. Though several accounting firms
had already been formed, there is no record of a professional attempt
to have the practice of public accountancy recognized on a national
level.
EARLY AMERICAN ACCOUNTANTS
British Accountants in the United States
Richard Brown of Edinburgh, in his History of Accounting and
Accountants, published in 1905, leads one to believe that British
Public Accounting in the United States— 1148-1895 43
accountants had visited the United States before the American
Revolution.
A great commercial crisis visited Glasgow in 1777 as the result of the revolt
in the previous year of the North American Colonies, with which part of the
world the trade of the city was closely identified.
Mr. Walter Ewing Macloe of Cathkin who was designated in the earliest
issue of the Glasgow directory as "Merchant and Accountant" was, we are told,
from the esteem and confidence in which he was held, employed to wind up
some of the largest and most important of the bankruptcies which occurred in
that unfortunate year. 1
This reference stimulates the imagination, for the extensive trade
with the American colonies that had been directed out of Glasgow
and other British cities called for visits to be made to this country
to check on investments. It is known that James Ewing Macloe,
son of Walter Ewing Macloe, acquired possessions in the West
Indies, and one wonders if some of the Britishers who may have
come for specific accountancy engagements did not remain here
and establish themselves to serve American business firms of Phila-
delphia, Boston, New York, and Charleston. If so, it may be inferred
that a few Americans availed themselves of the abilities and experi-
ence of these visitors. No definite dates have been determined for
the earliest visits by Scottish accountants to the colonies on behalf
of British traders, or for the later permanent migration of British
accountants to this country.
The public accounting engagements in the American colonies
during the eighteenth century were doubtless performed in one or
more of the commercial towns on the Atlantic seaboard during one
of the commercial crises, and they were probably connected with
some of the principal businessmen of that time. 2
Functions of Early American Public Accountants
Some early references to men performing the functions of public
iNorman E. Webster, "Public Accountancy in the United States," in Fiftieth Anniversary Celebra-
tion (New York: The American Institute of Accountants, 1937), p. 102.
2 Ibid., p. 103.
44 History of Public Accounting
accountants in the United States have been found, the earliest being
dated 1748. In that year Benjamin Franklin sold his interest in
the firm of Franklin and Hall, a printing company, to David Hall
for £ 18,000. The money was to be paid to Franklin in eighteen
annual installments amounting to £ 1,000 each, subject to a final
accounting for the contributions and withdrawals of the partners.
This period expired in 1766 when Franklin was in London as colo-
nial representative. He asked James Parker, who had been his part-
ner in New York for several years, to act as his representative in
the final settlement with Hall. Parker made an inventory and
valuation of the equipment and materials and presented a report
which he entitled "State of your Accounts with Mr., Hall."
There is no proof that James Parker was in practice as a public
accountant. Nevertheless, this may have been the first public
accounting engagement in the American Colonies. This report is
on deposit in the library of Columbia University. 3
On January 11, 1786, there appeared The New York Directory,
the first such volume issued for that city. The publisher, Shepard
Kollock, advertised it as showing national, state and municipal offi-
cers, ministers, bank officers, Columbia College professors, physi-
cians, lawyers, tradesmen, etc. One of the announcements in the
directory reads as follows:
David Franks Conveyance and Accountant No. 66 Broadway begs leave to
return his sincere thanks to his friends and the public and hopes the cheapness
of the following will continue him their favors. 4
Then follows the advertiser's charges for drawing a release, a bond,
and a power of attorney, but fees for services as an accountant were
not stated.
A similar reference to a public accountant is found in an adver-
tisement which appeared in the New Jersey Journal of Wednesday,
July 8, 1795, printed and published by the same Shepard Kollock
at Elizabethtown, New Jersey. The advertisement reads:
*lbid., p. 104.
*Ibid., p. 105.
Public Accounting in the United States— 1748-1895 45
Notice
A conveyancing office and office of intelligence will be opened by the sub-
scriber on Monday next, in the brick house of William Shute, Esq., formerly
occupied by Cortland Van Ansdaler; where writings of every kind will be done
on moderate terms; also, farmers and tradesmen's books posted with accuracy
and dispatch, and those who do not understand the method of keeping their
books will be shown the form.
Benjamin Thowson
Elizabethtown, April 21, 1795. 5
The public practice of accountancy seems to have been combined
most commonly with teaching and writing on the subject of book-
keeping. The advertisements also indicate that some individuals
were performing the duties of accountants and lawyers at the same
time.
The following display advertisement indicates the functions per-
formed by the public accountants in the United States during the
last half of the nineteenth century.
1851
Practical bookkeeper and accountant. Opposite the Court House. Books
opened, closed, posted. Bills and accounts made out. Bookkeeping in all its
varied branches taught individually or in classes. 6
According to this advertisement the accountant did some systems
work but was primarily a bookkeeper and probably resorted to
teaching to supplement his income.
The New York City directories give the name of James A. Ben-
nett for the following years:
1818-1820, Accountant, 48 Fulton Street
1821-1822, Accountant, 12th Avenue
s "Early Days of Accountancy," The Journal of Accountancy, XVI (October, 1913), 311.
e A. C Littleton, Directory of Early American Public Accountants (Urbana, Illinois: The University
of Illinois, 1942), p. 19.
46 History of Public Accounting
1823 Not given
1824-1829, Teacher in Bookkeeping, 97 John Street
1830-1831, Teacher in Bookkeeping, 39 Arcade
1833-1835, Teacher in Bookkeeping, 73 John Street?
Among those who were included in the directories was Benjamin
F. Foster, of Boston, who was listed as a teacher in 1834 and as an
accountant in 1835-1837.
The file of directories covers most years of the two decades 1850-
1869. For New York, volumes for nineteen of the twenty years
have been found; for Philadelphia, the volumes for nineteen years
are included; for Chicago, all directories are available. Fifty-eight
of a possible sixty annual directories give a fair sample of the
number of accountants holding themselves out to clients. For New
York in each of three years (1850, 1852, 1856) there were fourteen
names listed; in eight other years there were seven, eight, or nine
names; and in eight other years there were three, four, or five
names. The number of public accountants listed in city directories
during the following years in New York were: twelve in 1870,
eleven in 1871, sixteen in 1872, eleven in 1873, eighteen in 1874,
twenty-two in 1875, twenty-four in 1876, twenty in 1877, twenty-
four in 1878, forty-one in 1879, and thirty-one in 1880. 8
The Philadelphia directories of this period showed twenty-three
names in 1869, twelve in 1860, ten in 1862, four in 1850, and for
other scattered years three with three names, one with five, and
two with seven names. Chicago lagged far behind. In 1854, only
eight names appeared in the directory; only two were listed in the
1865 directory, and there appeared only one each in the directories
for eight other years before 1870. 9
Probably the first person to call himself a public accountant in
Pennsylvania was John W. Francis, who opened an office in Phila-
delphia in 1869. Some years later Charles Nixon Vallum opened
his office as an accountant in 1875 also in Philadelphia. He sent out
an attractive card, handwritten and reproduced photographically,
7 H. C Bentley, A Brief Treatise on the History and Development of Accounting (Boston: Bentley
School of Accounting and Finance, 1929), p. 27.
8 A. C Littleton, Directory of Early American Public Accountants, p. 12.
•/«*., p. 13.
Public Accounting in the United States— 1748-1895 47
explaining briefly just what he was prepared to do for the public. 10
The announcement was as follows:
1875
Prepared to make statements for executors, examine corporations, partner-
ships, individual books and accounts of every description, open and close books,
to attend to any and every kind of bookkeeping. Books posted monthly and
trial balance taken at a trifling cost. Plans furnished for books for special pur-
poses. 11
John Heins, who was later to play a primary role in the organi-
zation of the American Association of Public Accountants, began
to practice as a public accountant in downtown Philadelphia in
1877.
Another one of these advertisements which indicates the widening
scope of the accountant's functions appeared thirty-six years after
the 1851 display:
1887
H F , public accountant and auditor, examines and reports
on individuals, partnerships, corporation accounts, investigates and adjusts dis-
puted accounts, acts as assignee or receiver, designs new books to meet special
requirements. Books posted and balance sheets rendered, accounts audited,
expert work for the courts, scientifically and faithfully performed. 12
The advertiser seemed to perform a much wider variety of func-
tions than thirty years earlier. The emphasis in 1887 was on audit-
ing business records and issuing reports, whereas in 1851 the ac-
countant or bookkeeper was concerned with the more routine mat-
ters of posting and closing accounts. In the advertisement of that
year the advertiser offered clerical help in drawing up statements for
his clients. The accountant in the later instance was available for
work of a professional nature.
10 George Wilkinson, "Organization of the Profession in Pennsylvania," The Journal of Accountancy,
XLIV (September, 1927), 162.
U A. C Littleton, Directory of Early American Public Accountants, p. 19.
™Ibid., p. 20.
48 History of Public Accounting
During the early 1890's the railroad companies in the United
States were having financial difficulties. When The Norfolk and
Western Railway had a receiver appointed by a federal court, Price,
Waterhouse and Company, through its agent and predecessor, Jones
& Caesar, was engaged to make a detailed examination of the com-
pany's accounts. This was the first of several railroad engagements
undertaken by this firm.
Several other audits prior to amalgamation were brought to the
firm of Jones & Caesar during the last decade of the nineteenth
century. 13 These mergers continued even though the Sherman Anti-
Trust Act had been passed in 1890.
During this period engagements such as those by Jones & Caesar,
later Price, Waterhouse and Company, helped establish the profes-
sion. It was not yet a frequent occurrence for accountants to be
called in regularly for auditing engagements. In the engagements
incident to mergers the accountants would audit the books of all the
enterprises to be consolidated. In addition they assisted in deter-
mining the basis for recording the assets and equities of the com-
panies.
Formation of Accounting Firms
A natural development from practice as individuals was the
association of two or more accountants in partnership. Accountants
probably formed partnerships in imitation of other professions
such as medicine and law, or following the precedent set by British
accountants. Some years later it was required by law that accountants
form partnerships rather than corporations so that the accountant's
liability would not be limited.
The firm of Veysey and Veysey was established in New York in
1866. The senior partner, William H. Veysey, was an Englishman
who never foreswore allegiance to Queen Victoria. His oldest son,
Walter H. P. Veysey, was associated with him. 14 Prior to 1880 this
firm had several assistants who were to become leaders in the devel-
opment of the profession. Among them were James N. Kell, later the
U C. W. DeMond, Price, Waterhouse and Company in America (New York: The Comet Press, Inc.,
1951), p. 5.
"George Wilkinson, "Organization of the Profession in Pennsylvania," The Journal of Accountancy,
XLIV (September, 1927), 162.
Public Accounting in the United States- 1748-1895 49
treasurer of the New York State Society of Certified Public Ac-
countants, and George Wilkinson, subsequently active in setting up
the national organizations.
In Cincinnati a firm was listed under the caption of Accountants
Bureau in the 1876 directory. The firm was composed of Nelson,
Shepard and Cooke, who were listed as Expert Accountants. 15
Barrow, Wade, Guthrie and Company, one of the earliest national
firms, if not the oldest which no longer exists, was established in
October, 1883, in New York. From its earliest days engagements were
taken in different sections of the United States. As far as can be
determined the accounting firms prior to this date were local in their
operations. Guthrie had come to this country while acting in the
capacity of receiver of a certain bankrupt financial concern in Eng-
land. His mission was to inquire into the value and status of certain
property and assets in the United States, as representative of the firm
of Thomas, Wade, Guthrie and Company, Chartered Accountants, of
London and Manchester, England. During his stay here it became
evident to this trained accountant, that there was an opportunity
to establish a firm in this country. He joined with John Wylie
Barrow, of New York, an actuary, who, as the American partner,
checked the branch statements of insurance companies before for-
warding them to England.
Prior to Barrow's death in 1886, the firm took in another partner,
Oscar E. Morton. But when Guthrie returned to this country with
James T. Anyon, whom he had employed to work in the New
York office, he was faced with a lawsuit brought by the resident
partner. After the suit was settled in Barrow's favor, Anyon assumed
the duties of the firm here and became outstanding in the develop-
ment of public accountancy. 16
All the names of the partners in James Yalden and Company are
not known, but James Yalden was listed in the 1883 New York
telephone directory; in 1891 he was listed under Yalden, Brooks
and Donnelly, and in 1893 under Yalden, Brooks and Walker.
Security offerings in the New York Times showed that accounts
were certified in 1890 by Deloitte, Dever, Griffiths and Company
and by Price, Waterhouse and Company.
15 Norman E. Webster, "Public Accountancy in the United States," in Fiftieth Anniversary Cele-
bration, p. 107.
18 James T. Anyon, "Early Days of American Accountancy," The Journal of Accountancy, XXXIX
(January, 1925), 2.
50 History of Public Accounting
Samuel Lowell Price, of Price, Waterhouse and Company, was a
moving spirit in the formation of the Institute of Accountants in
London in 1870. He was active in this organization until it was
absorbed by the Institute of Chartered Accountants in England
and Wales, incorporated in 1880. All three partners, Price, Water-
house and Holyland, were Fellows of the Institute of Accountants.
Work in the United States was undertaken by the firm as early
as 1873, and thereafter visits to this country were made with in-
creasing frequency. 17 During the next decade there was considerable
activity in the conversion of privately owned businesses into public
companies, and a report on earnings, signed by some well known
accountant, became an indispensable part of the prospectus adver-
tising the offer to the public. During this period London financiers
were seeking opportunities for investment of funds abroad, and
as a result the undertakings by the firm, particularly in America,
were increasing. With the amalgamation of a group of American
breweries into the Bartholomay Brewing Company of Rochester,
New York, audits were made of the accounts of the constituent
companies. Sheath and Fowler, and members of the staff of Price,
Waterhouse and Company were sent to the United States to carry
out the work involved in the merger proceedings.
The period during which these representatives of English public
accounting firms came to audit the accounts of American breweries
was the beginning of a new era of expansion in American business
enterprise. But the great value to the profession of the work re-
ferred from London lay in the opportunity for training Americans
taken on the staff, many of whom had practically no previous ex-
perience in public accounting.
The firm name of Jones, Caesar and Company was used; this
was one of the first American public accounting firms. The first
American office of Price, Waterhouse and Company was opened
under the latter name in New York in September, 1890. The Chi-
cago office was opened in February, 1892.
In 1893 the first of the midwestern firms, Stuart and Young, was
opened by Arthur Young in Chicago.
Then came the founding of Haskins and Sells on March 4, 1895,
in New York. The two founding partners, Charles Waldo Haskins
and Elijah Watt Sells, had met while serving on a committee which
17 C W. DeMond, Price, Waterhouse and Company in America, p. 5.
Public Accounting in the United States— 1148-1895 51
was investigating the operations of the Executive Department at
Washington after the panic of 1893. 18
A note in The Accountant, in 1899, states that two of the best
known firms of English chartered accountants opened branch offices
in Chicago in the year 1891 and transferred their Western business
to them. 19 Unfortunately the names of these firms were not given
in the announcement, but Jones and Caesar were operating in the
United States as agents of Price, Waterhouse and Company of
England and had several accounts in the Chicago area, including
the stockyards. Jones first came to this country in 1891 and estab-
lished an office in Chicago; therefore this might have been one of
the offices mentioned as branch offices of an English firm of Char-
tered Accountants.
PROFESSIONAL ORGANIZATIONS
Institute of Accountants and Bookkeepers
Just as it was natural to form partnerships, it was also a natural
move for an occupational group to form an organization for social
as well as professional benefits. The first accounting organization in
the United States was the Institute of Accountants and Bookkeepers
of the City of New York, incorporated July 28, 1882. The name was
shortened to the Institute of Accountants on June 23, 1886. Its ob-
jects and purposes, as stated in its certificates of incorporation, were
the evaluation of the profession and the intellectual advancement and improve-
ment of its members:
1st, By the discussion in its councils of technical knowledge and commercial
practice;
2nd, By aiding its members in the performance of their professional and social
responsibilities. 20
"Charles W. Haskins and E. W. Sells, The First Fifty Years, 1895-1945 (New York: privately
printed, 1947), p. 5.
M "The Public Accountant in Chicago," The Accountant, XXV (April, 1899), 395.
20 Norman E. Webster, "Early Movements for Accountancy Education," The Journal of Accountancy,
LXXI (May, 1941), 443.
52 History of Public Accounting
Although the Institute of Accountants and Bookkeepers was
active during twenty-five years or more, very few records of its
activities remain except its charter, its bylaws, a few notices, and
some news items in the accounting journals of that period. These
records show that its membership included a considerable number
of accountants in public practice, and that for its highest class of
membership applicants were required to pass examinations which
were described as severe. Its aims, at least during the first decade
of its life, appear to have been almost wholly devoted to education
for accountancy and the provision of accounting literature. So far
as is known, this was the earliest effort to provide educational
opportunities for the profession in America. 21
American Association of Public Accountants
After the organization of accounting firms and the establishment
of collegiate schools of business, it became clear to a few men of
vision that the profession then known as "expert accounting" was
a profession essential to the proper conduct of business. Those men
who claimed to be experts in "matters of accounts" were few in
number, had no means of increasing their number or maintaining
high standards of practice for their own benefit and for that of the
public, nor did they have any legal status or means of controlling
the profession. It was not until 1886 that the first steps were taken
to organize accountancy on a professional basis.
As has been noted, James T. Anyon arrived in New York City
from London in October, 1886, to enter the firm of Barrow, Wade,
Guthrie and Company. After the death of Barrow, Anyon turned
his attention to an inquiry into the standing of the profession of
accounting in New York. Anyon made the following statement:
I had left on the other side a profession full of vitality, one that was looked
upon as an essential element of business life, and so recognized in every section
of business activity. It need therefore not be a matter for surprise when I say
that it was natural I should expect in this great and progressive country to find
relatively the same conditions in the respect named as existed in the country I
had left. A general survey of the situation, however, soon made the fact apparent
*mid., p. 443.
Public Accounting in the United States— 1148-1895 53
that these conditions existed here only to a very limited extent, that public ac-
counting was in its infancy and that it was little known or understood as a
distinct profession. 22
It was in early December, 1886, that Edwin Guthrie, F.C.A., of
Manchester, England, who was visiting the city of New York on
the business of his firm, accepted John Heins' invitation to visit
Philadelphia. Heins was one of the most prominent accountants
in Philadelphia. The object of the meeting was to discuss a plan
to organize public accountants into a society with the following
objectives:
to elevate the standing and advance the interest of public accountants; and to
direct attention to the advantages offered by, and the safeguard attending, the
auditing and adjusting of books and accounts by persons thoroughly skilled and
experienced as public accountants, and to establish personal reputation. 23
The society was to be called the "Chartered Accountants' Insti-
tute," but Guthrie strongly counseled Heins and Francis to use
some other name than "Chartered Accountants." He pointed out
that it would conflict with the use of that title in this country by
English and Scottish accountants here on professional business.
This seemed to be a serious objection, because the most important
and responsible business entrusted to public accountants in these
days was given to visiting British accountants due to the large
amounts of foreign (primarily English) investments in this country.
Also, Guthrie felt that a national organization, such as the Institute
of Chartered Accountants (1882) would serve these purposes better
than a state society /
Anyon immediately invited all of those present at the first meet-
ing as well as all interested accountants to meet with him and Edwin
Guthrie at the firm's office, 45 William Street, to discuss "the matter
of making the profession better known, understood, and recog-
22 James T. Anyon, Recollections of the Early Days of Accounting, 1883-1893 (New York: published
by the author, 1925), p. 16.
23 George Wilkinson, "Organization of the Profession in Pennsylvania," The Journal of Accountancy,
XL (September, 1927), 163.
54 History of Public Accounting
nized by the public, and what might be done to attain this object." 24
On December 22, 1886, six or seven persons attended such a
meeting. Guthrie was asked to take the chair, and Anyon to act as
secretary of the meeting. Guthrie is quoted as remarking in his
address
that it was a great privilege to him thus to have this opportunity of meeting
the accountants practicing in this and other cities; that he was sorry, however,
to find the profession had not materially progressed in public recognition, or
in other ways, since he was last here; that in England, on the contrary, the
profession was on a very high plane; that it was recognized as one of the lead-
ing professions— firms, corporations, banks, railroads, and other financial and
commercial entities seeking the service of accountants in all phases of activity;
that the efforts of practicing accountants in this country should be directed to-
ward bringing about a similar institution or body to that now existing on the
other side, viz., the Institute of Chartered Accountants in England and Wales,
under the regulations of which competent accountants could practice and be
recognized by the public as fully qualified so to do. 25
A resolution was proposed by John Heins, who had come from
Philadelphia to attend this meeting, that the accountants present
should form themselves into an association for the advancement
and protection of the interests of the profession, and that the quali-
fications for membership should be ability and fitness to practice
in a public capacity. It was further proposed (Anyon states that he
had the pleasure of making this motion) that the name of this
organization be the American Association of Public Accountants.
The motion was carried unanimously; thus came into existence,
on December 23, 1886, the first organized body of professional
accountants in the United States. 26 The ten members continued
to advance the interests of public accounting and to further the
legal recognition of the Association. Their efforts were finally suc-
cessful when, on August 20, 1887, the Association was incorporated
under the laws of the state of New York with the name and title
24 James T. Anyon, "Early Days of American Accountancy," The Journal of Accountancy, XXXIX
(January, 192 S), 7.
^Ibid., p. 7.
*>Ibid., p. 8.
Public Accounting in the United States— 1748-1895 55
of American Association of Public Accountants. 27 The following
is a copy of the certificate of incorporation:
The American Association of Public Accountants
Certificate of Incorporation
State of New York
City and County of New York ss:
Be it Known, that we:
Robert L. Fabian, of New York City
James Yalden, of New York City
Wm. Calhoun, of New York City
Walter H. P. Veysey, of New York City
Mark C. Mirick, of New York City
Charles H. W. Sibley, of New York City
Rodney McLaughlin, of Boston, Mass.
John Heins, of Philadelphia, Penn.,
being persons of full age and citizens of the United States, and the majority
being also citizens of the State of New York, desiring to associate ourselves for
social and benefit purposes do hereby certify in writing, as follows, to wit:
First: That the name or title by which such society shall be known in law is
"The American Association of Public Accountants."
Second: The particular business and object of such is to associate into a
society or guild for their mutual benefit and advantage the best and most cap-
able public accountants practicing in the United States; and through such
association to elevate the profession of public accountants as a whole, and to
promote the efficiency and usefulness of members of such society, by compelling
the observance of strict rules of conduct as a condition of membership, and
by establishing a high standard of professional attainments through general
education and knowledge and otherwise: and to transact such business as may
be necessary and incident to the establishment and conduct of an association for
the foregoing purposes.
Third: The number of trustees, directors or managers, to manage the same
shall be eight, and the names of the trustees, directors or managers for the first
year of its existence are as follows, viz.:
Robert L. Fabian, James Yalden, Wm. Calhoun, Walter H. P. Veysey, Mark
C. Mirick, Charles H. W. Sibley, Rodney McLaughlin, and John Heins.
Fourth: The district in which the principal office of such company or assoc-
iation shall be located is in the City, County and State of New York.
*T. Edward Ross, "Random Recollections of an Eventful Half Century," The Journal of Ac-
countancy, LXTV (October, 1937), 268. -
56 History of Public Accounting
In Testimony Whereof we have made and signed the foregoing certificate, this
twentieth day of August in the year one thousand eight hundred and eighty-
seven.
(Signed) J. Yalden,
John Heins,
Walter H. P. Veysey,
M. C. Mirick,
C. H. W. Sibley,
Robt. L. Fabian,
Wm. Calhoun,
Rodney McLaughlin. 28
All of the American citizens present signed the certificate of
incorporation. Anyon and Veysey, being British, could not join in
the petition. Of the eight original signers, only two remained mem-
bers after some twelve years— John Heins and James Yalden. 29
The bylaws of the association were prepared and adopted on
February 8, 1888, at a general meeting of the members of the
association. A council meeting immediately followed, at which
time the following officers were elected:
President James Yalden, New York
Vice-President J°hn Heins, Philadelphia
Treasurer William H. Veysey, New York 30
The first council of the association, the members of which were
selected to regulate the conduct of its affairs, consisted of the follow-
ing men:
James T. Anyon New York
Louis M. Bertheil New York
George H. Church New York
^Fiftieth Anniversary Celebration (New York: The American Institute of Accountants, 1937),
p. 506.
^Sanders W. Davies, "Genesis, Growth and Aims of the Institute," The Journal of Accountancy,
XLII (August, 1926), 105.
^Robert H. Montgomery, Fifty Years of Accountancy (New York: Ronald Press Company, 1939),
p. 63.
Public Accounting in the United States— 1748-1895 57
John Heins Philadelphia
Mark C. Mirick New York
Rodney McLaughlin Boston, Mass.
C. H. W. Sibley New York
William H. Veysey New York
Walter H. P. Veysey New York
James Yalden New York 31
The bylaws of the association provided that the members should
be divided into two classes, Fellows and Associates, with the right
to use after their names the initials F.A.A. or A.A.A., respectively.
It was provided that
Fellows shall be (1) the original incorporators of the association and those
who subscribe to the constitution and by-laws; and (2) all persons who have
practiced as public accountants continuously for three years previous to mem-
bership in the Association.
Associates shall be all persons who obtain a certificate of their having passed
the final examination hereinafter provided for. 32
At the time of incorporation the association had thirty-one mem-
bers, of whom twenty-four were fellows and seven associates. 33
ACCOUNTING LITERATURE AND EDUCATION
Early Bookkeeping and Accounting Books
James Bennett, one of the earliest American writers on book-
keeping, published his first work, The American System of Practical
Bookkeeping, in 1814. It met with popular response and was highly
recommended by merchants, bank presidents, the Comptroller of
the State of New York, the Mayor of Albany, and the Lieutenant
Governor of New York.
In 1818 Bennett published a revised edition for use in schools.
The title page of this edition shows him.as:
^James T. Anyon, "Early Days of American Accountancy," The Journal of Accountancy," XXXIX
(February, 1925), 84.
^James T. Anyon, Recollections of the Early Days of American Accountancy, 1883-1893, p. 33.
^James T. Anyon, "Early Days of American Accountancy," The Journal of Accountancy, XXXIX
(February, 1925), 85.
58 History of Public Accounting
James Beifnett, A. & M., Professor to the Accountants' Society of New York,
late a professor to the Accountants' Society of Pennsylvania, late President of
the Accountants' Society of New York, and member of Medico-Chirurgical
Society of the State of New York. 34
He probably stated this to promote his book. No other reference
to the organizations in which he claimed membership could be
found. The following quotations are from his book:
Natural and mathematical instruments are supplied and students will have
access to a choice library. An excellent, mounted telescope for observing Satel-
lites of Jupiter and for other astronomical purposes. 35
The annual commencement of Bennetts' Public Lectures on Bookkeeping is
on the first Monday in October, and a new class commences on the first Monday
of each of the succeeding months, including April; as the lectures close annually
on the 1st of May. 36
Terms for an unlimited attendance, with the practice, $15 to be paid in
advance. For private instruction, which is given at all times, $25 including
books for practice. The private instruction is given in the daytime throughout
the year. 37
Mr. Bennett makes the following statement as to his ability and
accomplishments :
The author has instructed in the Science and Art of Bookkeeping a far
greater number of grown persons than any other person in any other country
or age of the world; he has instructed persons from thirteen different nations
of the earth. 3 *
Another teacher-author-accountant was Benjamin F. Foster, of
Boston, whom the 1834 city directory listed as an instructor. From
1835 to 1837 he was listed as an accountant. He was also a writer.
84 H. C Bentley, A Brief Treatise on the History and Development of Accounting, p. 27.
*sibid., p. 27.
**lbid., p. 27.
^Ibid., p. 28.
nibid., p. 28.
Public Accounting in the United States— 1148-1895 59
In 1837 Christopher C. Marsh, of New York City, published a
Lecture on the Study of Bookkeeping with the Balance Sheet, the
title page of which contained the following statement:
To Merchants and Others
Complicated Accounts Adjusted:
Opinions given on disputed points relating to accounts;
Books opened and commenced. 39
George N. Comer, of Boston, published A Work on Bookkeeping
in 1842. His card as accountant stated:
Offers his services for the adjustment of disputed and complicated accounts,
Insolvent and Other Estates . . . and all business pertaining to that of an ac-
countant, executed with fidelity and dispatch. 40
It is clear, therefore, that these early American authors and
teachers sought engagements as public accountants. It is probable
that persons from other activities, especially from banking and
insurance, were from time to time called in for public accounting
service. After 1840, one begins to find mention of men whose
principal occupation was that of the public practice of accountancy. 41
In 1852 Christopher C. Marsh published Bookkeeping in Spanish
in California. A. G. Beck was secured as a professional translator
because of his friendship for Marsh and his familiarity with the
subject matter. According to a letter dated May 20, 1888, from Beck's
son, Francis E. Beck, who was one of the earliest members of the
American Association of Public Accountants, A. G. Beck was in
public practice as an accountant in Los Angeles from 1852 to 1878. 42
Following the Civil War, information as to accountants in public
practice, although much fuller, is far from complete.
^Norman E. Webster, "Public Accounting in the United States," in Fiftieth Anniversary Celebra-
tion, p. 106.
"Ibid., p. 106.
*Ibid., p. 106.
**lbid., p. 107.
60 History of Public Accounting
Nineteenth Century Bookkeeping and Accounting Education
Bennett, mentioned previously as one of the early authors, also
had a school which offered instruction in bookkeeping and related
subjects. It has been observed by a historian:
The school established by Bennett for the teaching of bookkeeping and
mathematical science, in New York City in 1818, is doubtless the first account-
ing school in the United States. 43
Attempts were made as early as 1851 to found a schoql of com-
merce at the university level. This attempt was made at the Univer-
sity of Louisiana but was apparently abandoned in 1857. In 1868
the University of Illinois established a school which became the
School of Commerce two years later; its purpose was to prepare men
for the tasks of business. Bookkeeping was one of the subjects taught.
In 1880 the Board of Trustees discontinued the school since
the attempt to construct a University School of Commerce along the lines of a
business college have proven unsuccessful. The school had done little more than
to prepare clerks and bookkeepers. It had not been realized that the function
of a university school of commerce was to prepare for future leadership in
economic enterprise, not for clerkship. 44
The first business college of record offering instruction in accounts
and related subjects was the Bryant and Stratton School, established
in 1853. 45 Schools of a similar nature began to be established rather
rapidly in the major cities on the east coast. 48
The United States was the first country to recognize accounting as
a proper subject or discipline to be given a place in the university
43 H. C Bentley, A Brief Treatise on the History and Development of Accounting, p. 28.
^Jeremiah Lockwood, "Early University Education in Accounting," The Accounting Review, XIII
(June, 1938), 132.
45 Norman E. Webster, "Early Movements for Accountancy Education," The Journal of Accountancy,
LXXI (May, 1941), 441.
M James B. Lovette, "History of Accounting in the United States," unpublished typescript, Amer-
ican Institute of Accountants Library, New York, p. 14.
Public Accounting in the United States— 1748-1895 61
curriculum. The earliest known definite plan for the establishment
of a collegiate school of business in the United States is described in
a report made by President Robert E. Lee in 1869 to the trustees of
the institution that later became Washington and Lee University.
President Lee died the next year and his proposal was not carried
out. 47
The honor of establishing the first American collegiate school of
business belongs to the University of Pennsylvania. Mr. Joseph Whar-
ton gave $100,000 in 1881 to establish the Wharton School of Finance
and Economy in Philadelphia. 48 The name was later changed to the
Wharton School of Commerce and Finance.
The American Association' s Educational Effort
On February 10, 1892, while James Yalden was President of the
Association and Henry R. M. Cook Vice-President, a special meet-
ing was called to consider a charter for an educational institution.
The Vice-President, who it appears was also chairman of a commit-
tee on the charter, was authorized to go to Albany "to find out the
particulars." At Albany the committee was advised by Melvil Dewey,
Secretary to the Board of Regents, to present to the regents a petition
for a charter for the proposed institution, embodying an outline of
its form of organization, a statement of the provisions to be made
for its financial stability, the curriculum which it would offer to its
students, and probably the names of the persons who would consti-
tute its faculty. On February 20, 1892, Harry A. Briggs, Richard F.
Stevens, and the Committee on Charter were constituted as a Com-
mittee on Curriculum which reported on March 5, 1892, that it had
agreed upon the course of study. On that date a fund of $5,000 was
provided; on April 6, 1892, John L. N. Hunt was asked to take the
chair of commercial law. 49
A copy of this petition or of the curriculum is not known to exist.
However, subsequent records indicate that the petition asked for a
charter for a college of accountants, with the power to confer de-
47 H. C Bentley, A Brief Treatise on the History and Development of Accounting, p. 28.
^Emanuel Saxe, "The Role of the Society in Accounting Education," in The New York State
Society of Certified Public Accountants, Fiftieth Anniversary (New York: New York State Society of
Certified Public Accountants, 1947), p. 21.
49 Norman E. Webster, "Early Movements for Accountancy Education," The Journal of Accountancy ,
LXXI (May, 1941), 443.
62 History of Public Accounting
grees, to have a guaranty of $5,000 against deficits, to offer the
courses provided for in the curriculum, and to be under the direc-
tion of the American Association of Public Accountants. The peti-
tion was endorsed by several hundred bankers, corporations, firms,
and individuals of note and sent to the regents prior to May 21,
1892, because on that date the Committee informed the members
that action would be taken on the petition in Albany on June 8,
1892. 50
The minutes of the regents' meeting contain this statement:
. . . and after discussion, on motion of Regent Doane, it was voted that the
Secretary be instructed to inform the petitioners in the matter of the American
Association of Public Accountants of New York that the regents are not pre-
pared to endorse the whole proposal in their petition, but are ready to open
examinations for such persons as desire to become public accountants. 51
The members of the Association's Charter Committee went to
work immediately on a revision of the petition. The task was com-
pleted and the revised petition was presented to the members of the
Association on December 8, 1892, when Cook submitted copies of
the petition and the proposed curriculum. A brief summary of the
ten sections of the petition follows:
1. It would be to the public interest to establish a professional school for ac-
countants, under the jurisdiction of the regents, the auspices of the Association,
and the guidance of members of the profession;
2. Guaranty by the Association against deficits to the extent of $2,500 a year;
3. Nominations as first trustees of the New York School of Accounts:
Thomas Bagot
Rufus G. Blandslee
Richard M. Chapman
George M. Church
Henry R. M. Cook
John L. N. Hunt
Lucius M. Stanton
50 "A College of Accountants — Petition for It Sent to the University Regents," The Accountant,
XVIII (June, 1892), 520.
^Norman E. Webster, "Early Movements for Accountancy Education," The Journal of Accountancy,
LXXI (May, 1941), 444.
Public Accounting in the United States— 1148-1895 63
Richard F. Stevens
Frank B. Thurber
John B. Woodward
James Yalden
for terms of two years, their successors to be elected by the Association;
4. Suitable accommodations leased at 122 West 23rd Street, now available;
5. Provision of all necessary furniture, appurtenances, books and supplies;
6. Full course of instruction to extend over two years, each of forty weeks,
1000 hours;
7. Provisional Charter for two years asked;
8. After two years absolute charters to be asked on endowment of $20,000;
9. School to be self-supporting with instruction fee of $100 per annum;
10. Expenses of school estimated at $8,000 or $9,000 per annum, $5,000 sub-
scribed to be used for furnishing the school and establishment of a library, and
students estimated at not less than 100, providing an income of $10,000. 52
The following is an outline of the proposed curriculum. It shows
that the courses were for the purpose of preparing the students for
the practice of public accountancy. The outlines included eight sec-
tions describing the scope of the courses that were to be studied and
one section showing the time allotted to each during each of the two
years.
Proposed Curriculum
Section 1. Science of double entry: elucidating the principles of original entry
and posting and the primary groundwork on which bookkeeping rests.
Section 2. Keeping accounts for sole proprietors, co-partnerships, and cor-
porations including the opening, conducting, and closing of books with the
preparation of balance sheets, merchandise, and profit and loss accounts and
schedules for merchandising, manufacturing, commission and brokerage, con-
struction and shipping and commission businesses.
Section 3. Corporation accounts, state returns, reorganizations, etc.
Section 4. Judicial accounts (now commonly called fiduciary) .
Section 5. Public accounts (now commonly called municipal) .
Section 6. Auditing— Examination of accounts for arresting or detecting
fraud; reconstruction of systems for insuring greater safety; preparing reports
and statements on investigations.
Section 7. Auditing— Analyzing accounts and deducting facts therefrom for
**lbid., p. 446.
64 History of Public Accounting
making calculations re future course of action; investigation for ascertaining
actual earnings of a business; settlement of partnership interest, etc.
Section 8. Law upon mercantile, corporation, banking, judicial accounting,
etc., upon matter of accounts as laid down by authorities or New York Statutes.
Section 9. First Year:
Theory of Accounts 5 hours per week
for 1st 20 weeks
Profession of Public Accountancy 5 hours
per week for last 20 weeks
Six general classes of Accounts, each
2 1/2 hours per week for full 40 weeks
Law 2 1/2 hours per week for full
40 weeks
Second Year:
Substitute Auditing and practical
reviews for theory and two general
classes of accounts— others as in
first year.
Both:
Instruction by lectures, dictation,
illustration, and texts. 53
Record of action on this petition is found in the minutes of the
Board of Regents for December 14, 1892:
The committee reported that the American Association of Public Accountants
had withdrawn the objectionable features in their original proposal and had
submitted a petition for a provisional charter for two years for the New York
School of Accounts. After discussion it was voted that a provisional charter
for two years be granted to the New York School of Accounts. 54
The records of the regents also show the charter, which was as fol-
lows:
Whereas, a petition for incorporation as an institution of the University has
been duly received, and Whereas official inspection shows that partial provision
&Ibid., p. 447.
**lbid., p. 447.
Public Accounting in the United States— 1748-1895 65
has been made for buildings, furniture, equipment, and for proper maintenance,
and that all other prescribed requirements will be fully met
Therefore, being satisfied that public interests will be promoted by such in-
corporation, the regents by virtue of the authority conferred on them by law
hereby incorporate James Yalden, F. B. Thurber, Thomas Bagot, Rufus D.
Chapman, Henry R. M. Cook, George H. Church, Richard F. Stevens, John B.
Woodward and their successors in office under the corporate name of New York
School of Accounts, with all powers, privileges and duties, and subject to all
limitations and restrictions prescribed for such corporations by law or by the
ordinances of the University of the State of New York. The first trustees of said
corporation shall be provisionally the above named twelve original incorpor-
ators.
If all requirements prescribed by law or by the University ordinances be fully
met within two years, then this charter shall be made permanent, but otherwise
on December 14, 1894, it shall terminate and become void and shall be sur-
rendered to the regents.
It is also provided that no diploma, certificate of graduation, or other creden-
tials shall be granted except on such conditions as are from time to time certi-
fied under seal of the University as being duly approved by the regents.
In Witness Whereof the regents grant this Charter Number 680, under seal
of the University at the Capitol in Albany, December 14, 1892.
Anson Judd Upon, Chancellor
(Seal) Melvil Dewey, Secretary 55
Even with the energetic sponsorship of the Association, the school
was not a success. The movement promoted by it succeeded, how-
ever. Soon after the temporary charter expired on December 14,
1894, the regents' willingness to open examinations as early as 1892
paved the way for two bills which finally blossomed into the first
state laws which set up the professional designation of Certified
Public Accountant.
PROPOSED LEGAL RECOGNITION
In 1895 the accountants in California and New York were seeking
legislation to obtain legal recognition and the licensing of public
accountants. Early in 1895 in New York, both of the then existing
accounting societies, the American Association of Public Account-
ants and the Institute of Accountants and Bookkeepers, had bills
nibid., p. 447.
66 History of Public Accounting
introduced in the legislature. The Association appointed a com-
mittee to promote the passage of suitable legislation, which was
prepared by Francis Gottsberger and introduced on February 20.
The Institute's bill was prepared by Henry Harvey early in March. 56
The Institute's bill provided for the examination of candidates for
certificates as Certified Public Accountants.
Section I of the bill stated:
Any citizen of the United States and a resident or doing business in the State
of New York, over the age of twenty-one years, and of good moral character
who shall have received from the University a certificate of his qualifications to
practice as a public expert accountant, shall be so styled and it shall be a mis-
demeanor for any person not holding such certificate to assume the title of
certified public accountant, or to use in connection with his name the letters
C.P.A.57
The bills of both the Association and the Institute contained re-
strictive provisions which, however, differed materially in their ap-
plication. The Association's bill provided
that no person shall practice as a public accountant after the passage of this act
unless he be licensed by the Regents of the University of the State of New York.
The Institute's bill provided
that after July 1, 1896, only certified public accountants should be appointed
or employed to act as examiners of accounts, expert accountants or paid auditors
by courts, administrators, receivers, state, county or municipal officers.
Before the end of the legislative session, the Association's bill, with
its restrictions of practice to those licensed by the Regents, was with-
^Norman E. Webster, "Background of the New York State CP.A. Law of April 17, 1896, and
Its Subsequent Amendments," in The New York State Society of Certified Public Accountants Fiftieth
Anniversary, p. 32.
^"History of the American Institute," in Fiftieth Anniversary Celebration, p. 7.
Public Accounting in the United States— 1748-1895 67
drawn. The Institute's bill was defeated in the Senate because of
the provision limiting practice to Certified Public Accountants. 58
SUMMARY
It seems evident that more than seventy-five years ago some men
in large cities called themselves public accountants. They audited
or "checked up" books with the object mainly of discovering or
preventing irregularities rather than for constructive work, although
systems work was undertaken. Somewhat later the foreign sharehold-
ers and bondholders of a number of large enterprises, mainly but
not exclusively railroads, desired that the accounts should be audited
and sent out auditors from England to perform such services. 59 This
practice led to the opening of offices in the United States by English
and Scotch auditors; some of the early firms were established in this
way. American accountants gave increasing competition.
The earliest accounting organization, the American Association,
was formed with the purpose of raising the professional standards
and "for social and benefit purposes." Early attempts to elevate the
profession by means of collegiate instruction in accounting for those
wishing to enter the profession were unsuccessful. Wharton's School
of Finance and Economy, however, was formed in Philadelphia, and
accounting was included in its curriculum.
The desire on the part of the members of the profession to receive
recognition was carried to the New York State Board of Regents.
With the Board's willingness to administer examinations an attempt
was made to secure legal recognition from the state. The first attempt
in 1895 to get legislation for the legal recognition of Certified Public
Accountants failed, but during the subsequent period the public
accountants continued their efforts with considerable success.
^Norman E. Webster, "Background of the New York State C.P.A. Law of April 17, 1896, and its
Subsequent Amendments," in The New York State Society of Certified Public Accountants Fiftieth
Anniversary, p. 32.
^Edward L. Suffern, "Twenty-five Years of Accountancy," The Journal of Accountancy, XXXIV
(September, 1922), 174.
CHAPTER V
Public Accounting in the United States, 1896-1913
The first legal recognition of the certified public accounting pro-
fession was gained during the period 1896-1913. These were years
of great expansion of accounting education, and of the founding
and growth of organizations that advanced the standing of the
profession. Some of the early firms discussed in this chapter are still
in existence and have acquired national or international reputa-
tions.
First C.P.A. Law and Other Legislation
New York Legal Recognition
After the failure to get the legislature of the state of New York
to pass public accounting legislation in 1895, the American Associa-
tion and the Institute of Bookkeepers and Accountants united be-
hind the Institute's bill, from which the restrictive provision which
would have permitted only certified public accountants to practice
accounting had been deleted.
The next year the Association appointed a committee of three to
press for the Institute's bill. Its members were Frank Broaker, Wil-
liam Sanders Davies, and James Yalden. Davies stated that he worked
for the bill only in New York City, that James Yalden was inactive,
but that Frank Broaker spent nearly all his time in Albany, and that
without his efforts and that of his partner, Richard M. Chapman,
of the firm Broaker and Chapman, the bill would not have passed. 1
On April 17, 1896, there was enacted the first legislation in the
United States to create the professional designation "Certified
Public Accountant." The law reads as follows:
Gorman E. Webster, "Background of the New York State C.P.A. Law of April 17, 1896, and Its
Subsequent Amendments," in The New York State Society of Certified Public Accountants Fiftieth
Anniversary (New York: The New York State Society of Certified Public Accountants, 1947), p. 33.
Public Accounting in the United States— 1896-1913 69
Chapter 312. Laws of 1896
Passed Assembly 3 April, 1896; Passed Senate 7 April, 1896.
Signed by Governor 17 April, 1896
State of New York
An Act to Regulate the Profession of Public Accountants.
The people of the State of New York, represented in the Senate and Assem-
bly, do enact as follows:
Section 1. Any citizen of the United States, or person who has duly de-
clared his intention of becoming such citizen, residing or having a place for
the regular transaction of business in the State of New York, being over the age
of twenty-one years and of good moral character, and who shall have received
from the Regents of the University a certificate of his qualifications to practice
as a public expert accountant as hereinafter provided, shall be styled and known
as a Certified Public Accountant; and no other person shall assume such title,
or use the abbreviation C.P.A. or any other word, letters or figures, to in-
dicate that the person using the same is such Certified Public Accountant.
Section 2. The Regents of the University shall make rules for the examina-
tion of persons applying for certificates under this act, and may appoint a
board of three examiners for the purpose, which board shall, after the year
eighteen hundred and ninety-seven, be composed of Certified Public Ac-
countants. The Regents shall charge for examination and certificate such fee
as may be necessary to meet the actual expenses of such examinations, and
they shall report annually their receipts and expenses under the provision
of this Act to the State Comptroller, and pay the balance of receipts over ex-
penditures to the State Treasurer. The Regents may revoke any such certificate
for sufficient cause after written notice to the holder thereof and a hearing
thereon.
Section 3. The Regents may, in their discretion, waive the examination
of any person possessing the qualifications mentioned in Section 1 who shall
have been for more than one year before the passage of this Act, practicing
in this State on his own account, as a public accountant, and who shall apply
in writing for such certificate within one year after the passage of this Act.
Section 4. Any violation of this Act shall be a misdemeanor.
Section 5. This Act shall take effect immediately. 2
For the first time, "Certified Public Accountant" was a term with
a definite legal connotation. 3
Acting under the authority of this act the Regents of the Univer-
2 New York Laws, 1896, Ch. 312.
8 C W. Haskins and E. W. Sells, The First Fifty Years, 1895-1945 (New York: Privately Printed,
1947), p. 8.
70 History of Public Accounting
sity of the state of New York appointed Frank Broaker, C. E,
Sprague, and Charles Waldo Haskins to be the first board of ex-
aminers under the new Public Accountants Act. 4 The following
conditions had to be met by each candidate before a certificate could
be issued under the rules of conduct. He had to be at least twenty-
five years of age with three years' satisfactory experience in the
practice of accounting, one of them in the office of an expert public
accountant. The examinations were to cover the theory of accounts,
practical accounting, auditing, and commercial law. 5 The examina-
tions were given under the auspices of the New York State Board
of Regents by a board of examiners appointed from the public ac-
countancy profession. These examinations were under the control of
the administrative board of all the educational facilities of the state
of New York.
Efforts at Federal Regulation
Many of the prominent practicing public accountants in these
years felt that the profession of accountancy needed federal recogni-
tion and regulation. They based their argument largely on the fact
that accountancy was to a very large extent interstate. All of the
large firms of public accountants, the arguments went, practiced in
more than one state— in some cases in foreign countries. If the ac-
countant could receive recognition from the national government,
he would be able to practice in interstate commerce without hin-
drance. The profession desired a license which all states would
recognise. It was pointed out by Sells that no comparable difficulty
existed in the practice of the professions of law and medicine,
neither of which, generally speaking, was of the same interstate
character as the profession of accountancy. 6
The reluctance of Congress to take action on legislation pertaining
to one profession was one reason for not pushing for a federal law.
Then, too, several states— for example California, Pennsylvania,
Florida, and Maryland— had C.P.A. legislation in force, and Con-
gress would be very reluctant to pass a law which might invade
*" Accountancy in the States," The Accountant, XXII (June, 1896), 504.
5 Charles W. Haskins, "Accountancy; Its Past and Present," an address delivered before the
American Association of Public Accountants, January 25, 1900 (unpublished), p. 21.
6 C W. Sells, "The Accountant of 1917," The Journal of Accountancy, III (February, 1907), 298.
<§>-
< o e >-
72 History of Public Accounting
States' rights. Hence the idea of securing Congressional action on
professional accountancy was given up or failed to gain acceptance.
Legislation in Other States
After the passage of the New York act public accountants in other
states sought their own state laws. The accountants in New York
were eager to offer information on their act and give assistance to
other state organizations. The Pennsylvania law was enacted in
1899, the Maryland law in 1900, the California law in 1901, the
Illinois and the Washington laws in 1903, the New Jersey law in
1904, and the Florida and Michigan laws in 1905.
Additional state legislation recognizing the accountancy profes-
sion was passed in Colorado in 1907, in Georgia, Connecticut, Ohio,
Louisiana, and Rhode Island in 1908, in Montana, Nebraska, Min-
nesota, Massachusetts, and Missouri in 1909, in Virginia in 1910,
West Virginia and Wyoming, 1911, and Vermont, 1912. The next
year Nevada, North Carolina, North Dakota, Oregon, Tennessee,
Wisconsin, Wyoming, Utah and Delaware got C.P.A. laws.
In each of these states the accountants banded together in a society
which became affiliated with the American Association. By the end
of the first decade of the twentieth century, there were about one
thousand members of the Association. The accompanying map
reflects the spread of accountancy legislation in the United States
up to and including 1913. This map shows the thirty-one states which
had laws governing the issuance of Certified Public Accountant
certificates as of that date.
First Violation of C.P.A. Law
In 1898 the first violator of the New York C.P.A. law was brought
into court. This was even before any other state had enacted such
a law. The suit resulted from the publication of the following ad-
vertisement in a New York newspaper.
Accountant— a certified public accountant, highly recommended, will write
up books, prepare trading accounts, make investigations etc., terms, $6 per
diem, or accept permanent situation with firm or corporation— Certified Ac
countant, Herald. 7
7 " Accountancy in the States," The Accountant, XXTV (April, 1898), 349.
Public Accounting in the United States— 1896-1913 73
In checking, authorities found that this advertisement had been
inserted by one John Fenton, who pleaded ignorance of the 1896
Act and offered a full apology. Further, he stated that he was a
member of the Society of Accountants and Auditors of England,
but after a check had been made his name was not found among the
list of members.
When Fenton appeared in court he pleaded guilty to the charge
of using the professional designation "Certified Public Accountant"
without having been licensed to practice by the New York State
Board. He was fined $35.00 or ten days in jail for the violation. The
conviction of the violator of this law was made only nine days after
the violation. 8 It is clear that accountants were anxious to establish
and maintain professional standards in an effort to acquire recogni-
tion. They probably wanted to make an example of the first violator
of the new public accountancy act.
C.P.A. Examination, Certification, and
Professional Expansion
Analysis of First C.P.A. Examination
The first examination was given by the New York Board of Exam-
iners on December 15 and 16, 1896. The full text of this examina-
tion is in the Appendix. The first section of the examination, on the
theory of accounts, was given on December 15, 1896 from 9:15 A.M.
to 12:15 P.M. Candidates had to answer five obligatory questions and
any five of the other questions. The first question pertained to the
essential principles of double-entry bookkeeping as contrasted with
single-entry. Other questions required the candidate to distinguish
between accounts— revenue account, trading account— and to define
such terms as fixed assets, cash assets, stock, capital, and loan capital.
Practical accounting was given in the afternoon from 1:15 to 4:15
P.M. There were two obligatory questions: the first required a
statement of affairs, and the second had to do with a partnership
problem. The third question concerned the opening of the books
of a company after purchase at a receiver's sale. A balance sheet was
to be made from the ledger accounts. The fourth question dealt
*Ibid., p. 349.
74 History of Public Accounting
with a partnership liquidation problem, the fifth with foreign ex-
change, and the sixth with a problem of a joint venture.
The auditing examination was the following day from 9:15 A.M.
to 12:15 P.M. Ten questions had to be answered by the candidate,
five of them required, with a choice of five from seven remaining
questions. The subject matter pertained to the duties of an auditor,
and the principal points to which he should direct his attention
while auditing a corporation. The examination then went into
specific questions in regard to auditing cash payments and receipts
as well as other specific audit procedures. The candidate had to make
a grade of 75 out of 100 on each section of the examination to pass.
The examination apparently covered the functions which the public
accountant performed during the 1 890's.
The present-day C.P.A. examination covers the areas mentioned
in this first examination, but requires a longer period of time (two
and a half days) with longer sessions. The technical portion of the
test has been set at the level of a senior accountant. Thus the em-
phasis now is on accounting matters with much less time devoted
to bookkeeping, or even none at all.
As a result of the first examination held under the auspices of the
Regents of the State of New York under the authority granted in the
first C.P.A. law, fifty-six certificates were issued. The records of the
American Institute of Certified Public Accountants show that all of
these certificates were issued by waiver. (See Appendix B.) In fact, it
was two years before a certificate was issued upon examination, evi-
dently because the examination papers were unsatisfactory. Some
accountants at this time began to refer to the C.P.A. title as a "de-
gree." Webster says the term was used because the certificates issued
were from the State Board of Education of New York, and because
the initials were written after the name as are the letters of academic
degrees. 9 It was not a degree as the term is generally understood, but
a certificate of professional proficiency. Frank Broaker (Broaker &
Chapman) was issued Certificate No. 1; his partner, Certificate No.
2; Sanders Davies, Certificate No. 4; and certificates were also
granted to James T. Anyon and G. Sever, both with Barrow, Wade,
Guthrie and Company of New York. 10
9 Letter from Norman Webster, Chairman of the History Committee of the American Institute of
Accountants, to James D. Edwards, dated October 16, 1951.
10 " Accountancy in the States," The Accountant, XXIII (January, 1897), 99.
Public Accounting in the United States— 1896-1913 75
Examinations— Thirty Boards
Twentieth century accountants were not satisfied with the method
of examining candidates for the certificate. There was little uniform-
ity in the requirements of the various state boards, of which there
were thirty in 1913, and it was felt by some members of the profes-
sion that the C.P.A. examinations did not deserve to rank along
with examinations in law and medicine. 11
The following extract from an editorial in the July issue of The
Journal of Accountancy reflects the opinion of the profession:
It has long been a reproach to the Accountancy profession in the United
States that the examinations proposed for admission into the profession are
exceedingly elementary and in no way comparable with the examinations for
admission into the other learned professions. The examinations everywhere
consist of questions in four subjects: theory of accounts, practical
accounting, auditing, and commercial law. The questions in commercial law
can readily be answered after a few days "cramming" from some elementary
text books, such as White or Gano. The auditing questions require a mastery
of Dicksee's auditing and little more. The theory of accounts examination
usually asks of the candidate a number of elementary definitions, for example,
"What is a consignment account," "Define and differentiate real and nominal
accounts or controlling and specific accounts"; or such a question as this is asked,
"State briefly the proper manner of conducting the following kinds of accounts:
Bills receivable, Bills payable, Shipment accounts."
These are questions in bookkeeping, and their answer demands no very high
order of intellectual attainment. The questions in practical accounting are of a
different nature. They are almost without exception, problems of simple arith-
metic which the student is required to express in "technical form." The prob-
lems themselves ordinarily present not the slightest difficulty, provided the
meaning of the examiners can be clearly determined. Their expression is gen-
erally a matter of taste. A variety of methods are available if the examinee
selects one which may or may not suit the examiner.
As a result of this condition, a singular situation is presented. With few
exceptions, candidates for the C.P.A. degree passed the examinations in com-
mercial law, auditing, and theory of accounts generally with high marks.
Very few, however, pass the examination in practical accounting. The rea-
son for this condition is not far to seek. It is because the first three subjects
"Edward S. Meade, "Established Preliminary Examinations in Law and Economics," The Journal oj
Accountancy, III (January, 1907), 193.
76 History of Public Accounting
are generally too elementary to be set as a condition of examination into
a profession, and because the examination in practical accounting demands of
the candidate the working out of puzzles rather than the solution of prob-
lems. Even interpreted in the most kindly spirit, the practical accounting ex-
amination is an examination for accountants' assistants and not for ac-
countants. We do not wish to be misunderstood as universally condemning all
the examination questions set by the state boards of accounting examiners. As a
general proposition, however, we believe that our characterization is correct. 12
Examination Results
During the years covered in the period from 1896 to 1913, we find
that a majority of the certificates issued to those in the public prac-
tice of accountancy were waiver certificates, granted to men already
in practice on the date of the enactment of the C. P. A. law. Actually
ORIGINAL C.P.A. CERTIFICATES ISSUED
Cumulative
if ear
Examination
Waiver
Reciprocity
Total
Total
1896
56
56
56
1897
70
70
126
1898
6
1
7
133
1899
9
35
44
177
1900
16
25
41
218
1901
15
70
85
303
1902
37
24
61
364
1903
58
41
99
463
1904
67
31
98
561
1905
36
20
56
617
1906
58
20
78
695
1907
62
28
11
101
796
1908
56
229
4
289
1,085
1909
115
108
8
231
1,316
1910
201
117
8
326
1,642
1911
122
47
11
180
1,822
1912 108 9 2 119 2,021
1913 89 139 16 244 2,265
SOURCE: American Institute of Certified Public Accountants.
mbid., p. 194.
Public Accounting in the United States— 1896-1913 77
the first C. P. A. certificates issued by examination according to the
American Institute's records were in 1898. The preceding table re-
flects the number of certificates issued by states by years, whether on
examination, by waiver or by reciprocity. The next column gives
the cumulative total. A complete list of the certificates issued by
states can be found in the Appendix.
Newly Established Firms and Branch Offices
With accounting practice moving more and more to the area of
business operations, Price, Waterhouse and Company opened the
following offices during the period 1896-1913: St. Louis, in Novem-
ber, 1901; Pittsburgh, in May, 1902; and San Francisco, in Novem-
ber, 1904. 13
Some significant auditing engagements which this firm handled
are presented here. In December, 1897, the firm Jones, Caesar and
Company (later Price, Waterhouse and Company) accepted an en-
gagement from J. P. Morgan & Company to make examinations of
the accounts of all constituent units which were to form the Amer-
ican Steel and Wire Company of New Jersey. This audit was one of
the first examples of the employment of public accountants during
the preliminary stage leading to the negotiation of merger agree-
ments. The consolidation was finally completed by John W. Gates
in 1899 after the recovery from the recession of 1897. 14
On February 17, 1902, the stockholders of the United States Steel
Corporation elected Price, Waterhouse and Company as auditors.
United States Steel was the first important industrial company to fix
a policy of having the auditors elected by stockholders rather than
selected by the officers or directors. The first audit certificate issued
by the corporation for the year 1902 was accompanied by a certificate
of chartered accountants signed by the firm. 15
In 1906, Stuart and Young was dissolved because of disagreements
between the partners, and the firm was reestablished under the name
Arthur Young and Company, opening its office in 1911. It became a
"Letter from C W. DeMond, Partner in Price, Waterhouse and Company, to James D. Edwards,
dated May 6, 1952.
M C W. DeMond, Price, Waterhouse and Company in America (New York: The Comet Press,
Inc., 1951), p. 34.
ls Ibid., p. 60.
78 History of Public Accounting
firm practicing on a national level two decades later. 16 The firm at-
tributes its growth into a national organization to the many special
jobs which were directed to it when the United States entered World
War I. Many of these special jobs related to investigation of com-
panies owned by alien enemies of the United States. 17
Haskins and Sells opened offices in Chicago on December 1, 1900,
in Cleveland and St. Louis in 1902, in Pittsburgh in 1903, in Balti-
more in 1910, and in San Francisco in 191 2. 18
Lybrand, Ross Brothers and Montgomery was founded on Janu-
ary 1, 1898, in Philadelphia. In 1902 Montgomery was given per-
mission by the partners to open a New York office. A Pittsburgh
office was set up in 1908, and a Chicago office in 1909. 19
In the last year of the period covered by this chapter, Arthur
Andersen, head of the accounting department at Northwestern
University in Chicago, became a partner in Andersen, DeLong and
Company. 20 It seems that he was the first university professor to
move from the teaching profession to that of public accountancy.
With over twenty- two hundred certified public accountants in the
United States by 1913, it would seem safe to assume that there were
several hundred public accounting firms. Most of them were prob-
ably operating in a single city. Some of the more active ones carried
on regional businesses. It would be reasonable to say also that there
were competent public accountants practicing in states which did
not have public accounting laws.
Educational Activities of the Profession
Education and Accountancy
After the formation of the Pennsylvania Institute of Public Ac
countants it was realized that the upbuilding of the accountancy
profession must come through education far more than through the
enactment of C.P.A. laws alone. With this idea in mind, the Coun-
16 Arthur Young and Company, Arthur Young and the Business He Founded (New York: privately
printed, 1948), p. IS.
™Ibid., p. 30.
"Charles W. Haskins and E. W. Sells, The First Fifty Years, 1895-1945, p. 5.
19 William M. Lybrand, Adam A. Ross, T. Edward Ross, and Robert H. Montgomery, Fiftieth An-
niversary (privately printed, 1948), p. 3.
20 Charles W. Jones, "A Chronological Outline of the Development of the Firm," The Arthur
Andersen Chronicle, IV (December, 1943), 8.
Public Accounting in the United States— 1896-1913 79
cil of the Pennsylvania Institute authorized, in the summer of 1902,
the formation of classes for the study of the four subject areas in the
field of Public Accounting. 21
These classes were organized primarily for the purpose of afford-
ing technical instruction to assistants engaged in the offices of mem-
bers of the Pennsylvania Institute. The restriction was not strictly
enforced, because each member of the Institute had the privilege of
nominating a student (not an employee) who wanted to become an
accountant. The subjects taken up and the instructors lecturing
thereon were:
Theory of Accounts, Robert H. Montgomery
Practical Accounts, W. M. Lybrand
Auditing, J. W. Fernley
Commercial Law, H. C Stockwell
These classes actually did not begin until the evening school was
started on October 20, 1902. 22
By the spring of 1904 negotiations had been successfully carried
out with the faculty of the Wharton School of Accounts and Finance
and with the trustees of the University of Pennsylvania to turn the
educational classes established by the Institute over to the Univer-
sity. Some members of the Institute guaranteed the expenses of con-
ducting the classes for the first winter season, but the guarantors
were never called on for any money. 23
In 1900, the Council of New York University established in that
institution a School of Commerce, Accounts and Finance, which
established the world's first department of accountancy, as such. 24
Because of the impetus to business, there was greater demand for the
services of accountants, and a scarcity of well-trained accountants
became evident. Members of the profession felt that some steps
should be taken to secure the cooperation of some educational insti-
21 George Wilkinson, "Organization of the Profession in Pennsylvania," The Journal of Accountancy,
XL (September, 1927), 162.
mbid., p. 170.
^Ibid., p. 171.
^Arthur H. Woolf, A Short History of Accountants and Accountancy (London: Gee and Company,
1912), p. 188.
80 History of Public Accounting
tution which would establish a course in accountancy to train stu-
dents to fill future needs for trained assistants. 25
The institutions were skeptical as to the feasibility or advisabil-
ity of such a step, but at length, heeding the urgings of the com-
mittee, New York University instituted the course in 1901. The
Board of Regents appointed C. W. Haskins as the dean of the new
school. 26
The tentative course of study, as worked out by the New York
State Society's committee included (A) Accounting (Theory of Ac-
counts, Practice in Accounting and Auditing); (B) Finance (Money
and Banking, Exchange, and Stocks and Bonds); (C) Commercial
Economics (Statistics, Taxation, Public Debt, and Economic His-
tory); and (D) Commercial Law. These had been recommended at
the meeting of the society in New York on December 10, 1900.
Dean Haskin's aim was "to bring together in the school such a
corps of trained educators and practicing accountants as would meet
the requirements of the State Board of Examiners under the Law
of 1896." 27
There was a pressing need for technical literature in those early
years. Very little had been written in the United States, and schools
were dependent upon English works, which, while valuable, were
not wholly adapted to use in this country. Almost immediately the
most essential books were published. 28
In the year 1900 thirteen universities and colleges gave accredited
courses in accounting. They were Dartmouth College, Drake Uni-
versity, Harvard University, Louisiana State University, the Univer-
sity of Pennsylvania, Temple College, the Agricultural College of
Utah, the University of Vermont, West Virginia University, and the
University of Wisconsin. These names were assembled after search
of some twenty-two hundred college catalogues by C. E. Allen in
1927. 29 Of the thirteen schools offering courses in accounting, only
four (the Agricultural College of Utah, Dartmouth, New York
^Edward L. Suffern, "Twenty-five Years of Accountancy," The Journal of Accountancy, XXXIV
(September, 1922), 177.
2«" Accountancy in New York State," The Accountant, XXVII (September, 1901), 983.
^Emanuel Saxe, "The Role of the Society in Accounting Education," in The New York Society of
Certified Public Accountants Fiftieth Anniversary, p. 23.
^Edward L. Suffern, "Twenty-five Years of Accountancy," The Journal of Accountancy, XXXIV
(September, 1922), 178.
^C. E. Allen, "The Growth of Accounting Instruction since 1900," The Accounting Review, II
(June, 1927), ISO.
Public Accounting in the United States— 1896-1913 81
University, and Temple College) had a course listed under the title
of auditing.
The first course in C.P.A. problems and questions as such ap-
peared in New York University's catalog during the period 1905-
1910. It can be stated that the introduction of a course called C.P.A.
Problems closely followed the passage of the state C.P.A. laws in
almost every case. 30 The Graduate School of Business Administra-
tion of Harvard University, the pioneer in its field as a strictly grad-
uate school, was founded in 1908. 31 Leland Stanford University
established a graduate school of business in 1925. The University
of Texas authorized a graduate degree in business in 191 7. 32
After 1905, it was decided to publish a journal which would make
the accounting papers given at the conventions available to the
public and the profession for educational purposes. The Account-
ancy Publishing Company was formed for this purpose. 33 The com-
mon stock went to the old Federation and to the Illinois Society.
The preferred stock was sold to prominent public accountants in
New York and Philadelphia by Robert H. Montgomery, Secretary
of the Federation of Societies of Public Accountants. 34
In November, 1905, the first issue of The Journal of Accountancy
was published as the official organ of the profession. The co-editors
were Professors Joseph French Johnson, of New York University,
and Edward S. Meade, of the University of Pennsylvania. For a time
these gentlemen accepted preferred stock in payment of their
salaries.
The first Journal reviewed the status of the profession:
Within the last decade accounting has made rapid strides. Several states have
formally recognized it as a profession by providing for examinations leading to
the degree of Certified Public Accountant. Five of the largest American Univer-
sities have organized instruction in Accountancy. A large number of the most
important railroads and industrial corporations subject their books to periodical
""Ibid., p. 155.
W H. C Bentley, A Brief Treatise on the History and Development of Accounting (Boston: Bentley
School of Accounting and Finance, 1929), p. 29.
^Minutes of the Board of Regents, The University of Texas, May, 1917.
^Sanders W. Davies, "Genesis, Growth and Aims of the Institute," The Journal of Accountancy,
XLII (August, 1926), 107.
^Robert H. Montgomery, Fifty Years of Accountancy (New York: Ronald Press Company, 1939),
p. 69.
82 History of Public Accounting
audits by Public Accountants. Banks, trust companies and insurance companies
have more recently adopted the same plan as a guarantee of security to deposi-
tors and policy holders, and the best method of protection against fraud. Manu-
facturers are calling upon public accountants to install cost systems, banks are
requiring borrowers to secure accountants' certificates to the statement sub-
mitted as a basis for credit, and states, municipalities and public institutions
fn constantly increasing numbers are engaging the services of the profession to
introduce systems and order into their affairs. These indications of the growing
appreciation of Accountancy are the source of gratification and encouragement
to its members; and there is no doubt that they will receive even more sub-
stantial recognition in the future. 35
Once the amalgamation of the Federation and the Association
became official, many if not all of the accountant-stockholders
donated their preferred stock to the American Association of Public
Accountants. At the annual meetings of this organization in 1908
and 1909, additional capital was obtained because the editor re-
ported that the Journal would not be on a self-supporting basis for
three years.
In 1911 the Council of the American Association of Public Ac-
countants voted to assume direct control of the Journal. The fol-
lowing letter was sent to the members of the Association:
November 20, 1911
Dear Sir:
At the recent meeting of the American Association of Public Accountants at
San Francisco, the Trustees unanimously decided that the association should
itself take over the supervision of The Journal of Accountancy. This in the
opinion of the Trustees was necessary to enable The Journal to reach the posi-
tion and circulation that its character justifies and that its greatest usefulness
demands.
The Association assumes direct editorial charge of The Journal, while ar-
rangements have been made with the Ronald Press Company of New York
City for its publication and general business management. The transfer of
The Journal to the Association in the manner above described is practically
effective with the December number and will be formally effective January 1,
1912.
This means that the Association has an increased interest in The Journal's
character and success. We now ask you, as a member, to accord it your most
^Editorial, "Present Status of the Profession," The Journal of Accountancy, I (November, 1905),
Public Accounting in the United States— 1896-1913 83
active support in suggestions, in subscriptions, and in contributions of material.
It is obvious that the heartier the support accorded by the members of the
Association, the better, the more influential, and the more effective can The
Journal be made.
We ask your support for The Journal of Accountancy because it is the official
organ of your association. Beyond this, we ask it because The Journal is emin-
ently deserving of your support— because it is the only organ of the accounting
profession in this country, and because you, as an accountant, cannot be fully in
touch with the best in your profession unless you are in touch with its current
literature,— which for this country finds its authoritative expression in The Jour-
nal of Accountancy.
Under the new regime, there will be no lowering of The Journal's high
standard. It will, however, be brought more closely in line with current ac-
counting needs; articles on practical accounting will be given even greater
prominence than heretofore; and practical discussions of these articles and of
other matters of direct importance to accountants will give added interest to
the magazines.
The Journal for 1912 will number the most prominent, the most progressive,
and the most successful accountants of the Country among its subscribers and
contributors. Will you not give it your support? If not already a subscriber, a
subscription check or money order for $3, made payable to The Journal of
Accountancy— 198 Broadway, New York— will be immediate and gratifying
evidence of your interest.
Yours very truly,
Edward L. Suffern,
President American Association
of Public Accountants 36
Then in January, 1912, A. P. Richardson became editor and in the
same year the Association assumed direct control of the Journal
with the cooperation of the Ronald Press Publishing Company. 37
Professional Organizations
American Association of Public Accountants
On April 18, 1896, some ten years after the Association was
formed and at the time the first public accounting law was enacted
and approved by Governor Levi P. Morton, the Association, accord-
ing to the American Institute of Certified Public Accountants, had
^Editorial, "The Journal and The American Association of Public Accountants," The Journal of
Accountancy, XXXII (November, 1921), 539.
S7 W. Sanders Davies, "Genesis, Growth and Aims of the Institute," The Journal of Accountancy,
XLII (August, 1926), 107.
84 History of Public Accounting
only forty-five active members, distributed geographically as fol-
lows: New York, thirty-seven; Massachusetts, three; California, two;
and Georgia, Illinois, and New Jersey, one each. 38
National Society of Certified Public Accountants
The legal recognition of the accounting profession in New York
led to the incorporation of a National Society of Certified Public
Accountants in the United States in 1897. Anyone holding a certi-
ficate from the University of the State of New York was eligible for
membership. The objects of this society were to elevate the profes-
sion, to unify into one body all Certified Public Accountants prac-
ticing in the United States, to exchange professional knowledge by
means of lectures, to establish a professional library, and to secure
legal mutual recognition of the letters C.P.A., by and between all
of the United States of America. Mr. C. W. Smith was the first pres-
ident of the National Society of Certified Public Accountants. Sixty-
seven accountants were admitted to membership. 39
The organization was short-lived, for in 1899 the National Society
and the American Association merged into one organization. The
merger was a great advantage to the membership of both groups as
well as the profession as a whole. 40 Many accountants had joined
both of the original societies.
Founding of the Federation
Under the stimulus of state recognition, the profession developed
rapidly. Public accountants in other states sought state laws similar
to that of New York. In July, 1902, at a meeting of the Illinois As-
sociation of Public Accountants, George Wilkinson read a paper in
which he set forth the great need for establishing a definite rela-
tionship among the local state societies, which at that time showed
little unity of purpose in affairs of a national character. He suggested
a plan for the coordination of all existing organizations by the for-
mation of societies of public accountants. 41 In a similar search for a
^Fiftieth Anniversary Celebration (New York: The American Institute of Accountants, 1937), p. 7.
^"Accountancy in the States," The Accountant, XXIII (September, 1897), 858.
±°" Accountancy in the States," The Accountant XXV (August, 1899), 889.
^James B. Lovette, "History of Accounting in the United States" (unpublished typescript, American
Institute of Accountants Library) , p. 14.
Public Accounting in the United States— 1896-1913 85
means of maintaining the standards set by the new laws, the practi-
tioners in several states formed societies; practicing accountants also
formed societies even in some of the states where laws had not yet
been passed. It was also pointed out by Wilkinson that accountants
practicing in the West did not feel that the old established American
Association of Public Accountants, domiciled as it was in New York
and governed by a New York board, was fulfilling its avowed pur-
pose as a national institute.
The first convention of the Federation of Societies of Public Ac-
countants in the United States was held at the New Willard Hotel
in Washington, D.C., on October 28, 1902. At this meeting a con-
stitution and bylaws were accepted and permanent officers elected.
The officers were Charles Waldo Haskins, President; George Wil-
kinson, Secretary; and Robert H. Montgomery, Treasurer. 42
The objects of the Federation, as defined in its constitution, were
as follows:
(a) To bring into communication with one another the several Associations
and Societies of Public Accountants, organized or to be organized under the
laws of the several States of the United States of America; (b) to encourage the
formation of State Associations of Public Accountants in States where they do
not exist; (c) to encourage State Certified Public Accountant legislation on uni-
form lines; (d) to secure Federal recognition of the profession of the Public
Accountant; (e) to facilitate and assist the training of young members of the
profession, and to establish a uniform standard of efficiency in federal societies;
(f) to disseminate throughout the United States a general knowledge of the
objects of the Federation and of the utility of the Public Accountants in the
industrial and financial development of the country; and (g) to further the
interests of the profession of the Public Accountant generally. 43
Though the Federation existed only from 1902 to 1905, the prin-
ciple was firmly established that the interests of the profession de-
manded, and that the members of the profession would support, a
national organization of accountants. 44
^Edward L. Suffern, "Twenty-five Years of Accountancy," The Journal of Accountancy, XXXIV
(September, 1922), 179.
^Richard Brown, A History of Accounting and Accountants (Edinburgh and London: T. C & E. C
Jack, 1905), p. 277.
**George Wilkinson, "Organization of the Profession in Pennsylvania," The Journal of Accountancy,
XLIV (September, 1927) 173.
86 History of Public Accounting
First International Congress
The Federation arranged the first International Congress of Pro-
fessional Accountants in connection with the Louisiana Purchase
Exposition, or World's Fair, held at St. Louis in September, 1904. 45
The President of the Illinois Society of Public Accountants and one
of the organizers of the Federation, George Wilkinson, was elected
secretary of the Congress. He was the organizer and director of all
its affairs. Joseph E. Sterrett, a prominent public accountant of
Philadelphia, was permanent chairman of this first Congress. In
his introductory address, Sterrett referred to the negotiations which
were then under way to effect a union of the two existing "national"
accounting organizations, including the state societies as well.
During the three-day Congress, several important papers were
read and discussed. The first was "A Brief History of the Movement
toward Uniform Municipal Reports and Accounts in the United
States," by H. W. Wilmot, A.C.A., C.P.A., of the firm of Jones,
Caesar, Dickinson, Wilmot and Company, and Price, Waterhouse
and Company. Other papers were "Revenues and Expense as Dis-
tinguished from Receipts and Disbursements in Municipal Account-
ing," by Frederick A. Cleveland, Ph.D., of Haskins and Sells, Certi-
fied Public Accountants of New York, and "Appropriations," by
Ernest Reckitt, C.P.A., of Chicago.
One of the primary objects of the Congress was to bring the mem-
bers together for the purpose of discussing matters of common in-
terest relating to their profession. To bring some of these matters
before them, George Wilkinson, C.P.A., and Secretary of the Federa-
tion of Societies of Public Accountants in the United States, pre-
pared and delivered a paper on "The C.P.A. Movement and the
Future of the Profession of the Public Accountants in the United
States of America."
Robert H. Montgomery, C.P.A. of Philadelphia, moved that the
discussion of this paper be along three lines: (1) The C.P.A. Move-
ment, (2) Audit Companies, and (3) National Organization. James
Martin of London discussed the C.P.A. movement, James Miller of
Cincinnati the audit companies, and A. L. Dickinson of New York
national organization.
5 James B. Lovette, History of Accounting in the United States, p. 14.
Public Accounting in the United States— 1896-1913 87
At the afternoon session of September 27, Francis W. Pixley,
F.C.A., Barrister-at-Law, delivered a paper, "The Duties of Profes-
sional Accountants in Connection with Invested Capital Both Prior
to and Subsequent to the Investment." This was followed by "The
Importance of Uniform Practice in Determining the Profits of
Public Service Corporations Where Municipalities Have the Power
to Regulate Rates."
On the last day of the Congress the two following papers were
read and discussed: "The Profits of a Corporation," by A. L. Dickin-
son, M.A., F.C.A., C.P.A., of the firm of Jones, Caesar, Dickinson,
Wilmot and Company and Price, Waterhouse and Company; and
"The Mode of Conducting an Audit," by Walter A. Staub, a staff
member of Lybrand, Ross Brothers and Montgomery of Philadel-
phia. 46
Ninety-one members attended this first International Congress
in 1904. 47
Communication on Merger
In the course of time it became apparent that if the profession
desired to achieve its proper place in the business community it
could not rely on state legislation alone: there were only seven
C.P.A. laws by 1904, almost nine years after the New York law. Ac-
countancy was not a local profession, even then, but was practiced
nationwide, and as time went on the need for professional standards
became more and more apparent. Both the American Association of
Public Accountants and the New York State Society of Certified
Public Accountants addressed letters to the Federation at the St.
Louis Congress. 48
At a meeting of the executive board of the Federation held during
the Congress the secretary presented a communication from the sec-
retary of the American Association of Public Accountants and one
from the secretary of the New York State society expressing the
opinion that there should be one national organization in which
^Official Record of the Proceedings of the Congress of Accountants Held at the World's Fair, St.
Louis, 1904, p. 206.
«Norman E. Webster, "Congress of Accountants," The Journal of Accountancy, LXXVII (December,
1944), 514.
^Carl H. Nau, "The American Institute of Accountants," The Journal of Accountancy, XXXI
(February, 1921), 104.
88 History of Public Accounting
all public accountants should be represented by delegates. Both
secretaries recommended the formation of a joint committee to con-
sider ways and means of bringing this about.
A joint committee of nine was consequently appointed, composed
of the following: W. Sanders Davies, Chairman; Duncan Maclnnes,
Franklin Allen, representing the American Association of Public
Accountants; A. Lowes Dickinson, George Wilkinson, and Robert
H. Montgomery, representing the Federation of Public Accountants.
This joint committee agreed upon a plan of consolidation under
which the American Association of Public Accountants would be
the continuing organization after certain necessary amendments of
its constitution and bylaws.
One National Organization
In 1905, as a result of efforts of a joint committee, the two organ-
izations merged. The new constitution of the American Association
of Public Accountants provided for membership by virtue of prev-
ious membership in a state society of public accountants and also
for individual membership, the latter being provided for those
public accountants practicing in states without societies. The new
society, even with the old association's name, was not organized to
supplant the various state societies of certified public accountants,
nor was it formed to supplant the C.P.A. laws of the various states.
It had its genesis rather in the effort to supplement both state legis-
lation and state societies, and was at least a partial remedy for the
recognized defects which had developed in former programs de-
signed to establish professional standards and professional solidarity
by enacting statutes and the issuance of certificates. 49 The amalga-
mation of the societies was an attempt to nationalize the profession,
with a centralized control from within itself, in place of a control
which lacked uniformity in both aims and ideals and was influenced
by outside conditions as well as by professional considerations. 50
The constitution of the first national organization stated the pur-
poses of the new society as follows:
* 9 Carl H. Nau, "The American Institute of Accountants," The Journal of Accountancy, XXXI
(February, 1921), 105.
™Ibid., p. 105.
Public Accounting in the United States— 1896-1913 89
1. The bringing together in friendly contact of the different state societies
and members of the profession.
2. The encouragement and unification of C.P.A. legislation.
In citing these provisions, J. Edward Masters comments:
In this organization the principle was adopted that the national organiza-
tion should not interfere with the local interests of the different states, but at
the same time should co-operate with the constituent societies in all practicable
ways. 51
The purpose of the merger was further set forth in the words of
President John R. Loomis of the American Association of Public
Accountants:
This occasion celebrates the culmination of what is perhaps the most im-
portant movement ever inaugurated in the interest of the profession of public
accountancy in this country— the fusion of the several societies constituting the
Federation of Societies of Public Accountants with the American Association of
Public Accountants. The American Association of Public Accountants stands at
this time as the grand national body, representing practically all public ac-
countants throughout the United States. Its objects are the elevation of the
profession and the spreading of a knowledge and recognition of the utility
and necessity for the public accountant in the industrial and financial develop-
ment of our country. It is an organization that every society can stand by and
that every member can work for. The hopes and plans of the past are now
measurably realized, and upon a basis of absolute cause for rejoicing— the
promise of the future is most encouraging.52
During the following years the program of the Association re-
flected a great interest in education for accounting. The educational
committee made an effort to impress upon the members of the As-
n J. Edward Masters, "The Accounting Profession in the United States," The Journal of Account-
ancy, XX (November, 1915), 351.
ra "History of the American Institute," in Fiftieth Anniversary Celebration (New York: The Amer-
ican Institute of Accountants, 1937), p. 9.
90 History of Public Accounting
sociation the importance of cooperation with the universities and
colleges. It also suggested that the members of the Association con-
tribute their services, whenever the opportunity arose, as instructors
and lecturers.
In these years the American Association of Public Accountants
continued to foster rapid development of the profession by acting
as its spokesman when the need arose, and it continued its efforts to
obtain legal recognition in all the states which had not yet enacted
C.P.A. laws.
Functions of the Profession
Audit Standards
Typical of the certificates issued during the period from 1902 to
1916 are the following three prepared by Price, Waterhouse and
Company. The significance of these reports lies in what they in-
clude rather than in what they do not include. Their emphasis is
clearly on valuation. In the Allis-Chalmers Company and Eastman
Kodak Company reports, the auditors have specifically mentioned
that the expenditures were examined to distinguish between capital
and revenue expenditures. These reports state that there has been
an adequate provision made for depreciation for the period. Both
relate to the correct valuation of fixed assets.
In each of the reports a specific statement is made concerning the
valuation of the inventories, carried at cost or market, whichever is
lower, except in one instance where the finished goods inventory
was carried at market. The physical inventories evidently were not
taken under the supervision of the auditors, but were certified to
them by the responsible officials. Then the receivables were reflected
at an estimated realizable value. The auditors checked the receiv-
ables to determine the collectibility of the accounts and the ade-
quacy of the reserves for uncollectible accounts.
The emphasis throughout the reports is on the valuation of as-
sets. The audit reports also included a statement that all of the ascer-
tainable liabilities had been recorded.
The statement in the 1908 Eastman Kodak Company report that
"the Balance Sheet is properly drawn up so as to show the true
financial position of the company," would be considered to be very
strong in a present-day audit report. In the other certificates the
Public Accounting in the United States— 1896-1913 91
auditor certified that the statements were "correct" or "correctly
prepared therefrom." "Therefrom" signified that the Balance Sheet
and Profit and Loss statements had been taken from the books and
accounts of the company.
May 27, 1902
To the Directors
of the Allis-Chalmers Company:
We have audited the books, accounts and vouchers of the Allis-Chalmers
Company at the general offices in Chicago, and at the offices of the several
works in Milwaukee, Chicago, Scranton, Wilkes Barre and Buffalo, for the
period from the commencement of the Company's operations to April 30,
1902, and we certify the accompanying Balance Sheet and Statement of Profits
to be correct.
We have examined the construction accounts for the period in detail, and
are satisfied that only capital additions properly so chargeable have been
charged thereto, all expenditures for maintenance, repairs and renewals having
been charged against revenue. Full provision has been made for depreciation
of buildings, plant and machinery.
We have examined the Bills and Accounts Receivable and find the amount
outstanding to be correct as stated, provision having been made for possible
bad debts.
We have counted the cash on hand at the several offices and have been
furnished satisfactory certificates as to the cash in banks.
We have verified the inventories by means of the cost system inaugurated by
us at your request during the period. Merchandise and work in progress have
been valued at factory cost, and all raw materials and supplies at cost prices
or market values where the latter were less than cost.
We find that all ascertained liabilities were duly brought into the books at
the close of the year, and ample reserves made for estimated outstanding ac-
counts not yet rendered, including the estimated expense of the erection and
completion of engines in course of installation.
The Company has issued no bills payable, has no bills payable outstanding,
nor has it incurred any contingent liability as endorser to customers' bills
receivable or otherwise.
Eastman Kodak Company:
We have examined the Books and Accounts of the B Company and its
Subsidiary Companies including a subsidiary in England for the year ending
92 History of Public Accounting
December 31, 1908, and have been furnished with certified returns from the
American and Foreign Selling Agencies, for the same period, and we certify
that the above Balance Sheet at that date and the relative Profit and Loss ac-
count are correctly prepared therefrom.
We have satisfied ourselves that during the year only actual Additions and
Extensions have been charged to the Cost of Properties and that ample pro-
vision has been made for Depreciation on Buildings, Plant and Machinery.
We are satisfied that the Valuations of the Inventories of Stocks on Hand as
certified by the responsible officials have been correctly and accurately made at
cost, and that full provision has been made for Bad and Doubtful Accounts
Receivable and for all ascertainable liabilities.
We have verified the Cash and Securities by actual inspection, and by Certifi-
cates from the Depositories.
And we certify that in our opinion the Balance Sheet is properly drawn up
so as to show the true financial position of the Company and its subsidiary
Companies, and the profits thereof for the year ending at that date.
[The American Hide and Leather Company]
Year ending June 30, 1902
We have examined the above Balance Sheet and relative Profit and Loss
account with the Head Office books of the American Hide and Leather Com-
pany and its Subsidiary Companies and with the certified returns from the
tanneries and we find the same to be correct. The stocks of merchandise on
hand are certified by the officials as correctly taken. Hides, supplies and work
in progress are valued at cost and finished leather at conservative market values,
less a reserve for discounts and selling expenses.
Full provision has been made for Bad and Doubtful Debts and in our opinion
the charge of Sinking Fund Appropriation to Profit and Loss is more than
sufficient to provide for Depreciation.
All three of these certificates were made available for this study by
C. W. DeMond, of Price, Waterhouse and Company. 53
During this time Arthur Young, of Arthur Young and Company,
made the statement regarding a merger engagement: "What you
have asked from us is not an accountant's report, but our business
^Letter from C W. DeMond, Partner of Price, Waterhouse and Company, to James D. Edwards,
dated May 6, 1952.
Public Accounting in the United States— 1896-1913 93
judgment on the entire business situation." 54 Such a statement in-
dicates that the work of the public accountant was beginning to blos-
som during the latter part of the period covered in this chapter.
The 1909 Tax on Corporation Income
The national tax legislation of 1909 added to the functions of the
public accountant. The United States Government decided to raise
some extra money in that year. An easy way appeared to be a tax on
corporations, but it was not lawful for the federal government to tax
income, so George W. Wickersham, United States Attorney General,
suggested a franchise tax on corporation income, measured by cash
receipts. This expedient may have sounded easy to those versed in
law, but was an almost insurmountable task for the accountant be-
cause terms were not defined and prescribed procedures for deter-
mining income were not consistent with good accounting principles.
Therefore the following letter was sent to each member of Con-
gress and the Attorney General: 55
New York City, July 8th, 1909
Dear Sir:
On reading the text of the proposed corporation tax law, as reported in the
Commercial and Financial Chronicle of July 3d, 1909, we have formed the
opinion that some of its provisions are absolutely impossible of application,
and others violate all the accepted principles of sound accounting.
Under the third clause it is provided "that there shall be deducted from the
amount of the net income of each of such corporations . . . ascertained as pro-
vided in the foregoing paragraphs of this section the sum of $5,000,000, and said
tax shall be computed upon the remainder of said net income of such corpora-
tion ... for the the year ending December 31st, 1909, and for each year there-
after, and on or before the 1st day of March, 1910, and the 1st day of March of
each year thereafter, a true and accurate return under oath or affirmation of its
president, etc., etc."
In connection with this clause we would call attention to the fact that as
you are no doubt aware, the fiscal year of a number of corporations is not and
for business reasons cannot be the calendar year, and consequently, having in
^Arthur Young, Arthur Young and the Business He Founded, p. 30.
^Editorial, "Accounting Errors in Corporation Tax Bill," The Journal of Accountancy, VIII (July,
1909), 213.
94 History of Public Accounting
mind that in such cases an inventory was not taken at the beginning of the
calendar year 1909, it is and will be quite impossible for any business, corpora-
tion or institution, whose fiscal year does not terminate with the calendar year,
to make a true return of its profits as required by the proposed law.
Under Clause 1 the tax is to be charged upon the "entire net income," and
the net income is to be ascertained by deducting from the gross amount of the
income . . . from all sources,
(1) "Expenses actually paid"
(2) "Losses actually sustained"
(3) "Interest actually paid"
in each case "within the year." The words "actually paid" convey, and it is
presumed are intended to convey actual disbursements out of the treasury.
The proper deductions should be:
(1) Expenses actually incurred because the payment is not necessarily made
in the year in which the expense is incurred;
(2) Losses actually ascertained because losses may be incurred and the amount
not be ascertained until a subsequent period;
(3) Interest actually accrued because interest is never paid until the end of
the period during which it accrues, and the interest accrued is the proper
charge against income.
In Clause 1 the bill refers to "net income received"; in Clause 2 it refers to
"gross income" without the addition of the word "received"; in Clause 3,
paragraph 3, it refers to "gross income received." There is here a complete
confusion between income and income received, which can only lead to endless
complication.
Two methods may be adopted for taxation purposes, either
(1) to tax the difference between actual cash receipts on revenue account
and actual cash payments on revenue, account, which difference will seldom if
ever represent the profits of a manufacturing concern; or
(2) to tax profits made up in the. ordinary commercial way, namely, to
ascertain the gross income earned whether received or not, and to deduct
therefrom
1. Expenses actually incurred during the year whether paid or not;
2. Losses actually ascertained and written off during the year whenever
incurred;
3. Interest accrued during the year whether paid or not;
4. A reasonable allowance for depreciation of property; and
5. Taxes
As accountants actively engaged in the audit and examination of a number
of varied businesses and enterprises, we unhesitatingly say that the law as
framed is absolutely impossible of application, and would suggest that in the
said Clauses 1, 2, and 3 of paragraph 2, the words "actually paid" and "actually
ascertained," and the third clause be changed to read so that the return will be
Public Accounting in the United States— 1896-1913 95
based on the last completed fiscal year prior to December 31st in cases where
the fiscal year of a corporation is not the calendar year.
Yours very truly,
Deloitte, Plender, Griffiths & Co.
49 Wall Street
Price, Waterhouse & Co.
54 William Street
Haskins & Sells
30 Broad Street
Lybrand, Ross Bros. & Montgomery
165 Broadway
Wilkinson, Reckitt, Williams & Co.
52 Broadway
Niles & Niles
111 Broadway
Gunn, Richards & Co.
43 Wall Street
Edward P. Moxey & Co.
165 Broadway
Geo. H. Church
55 Wall Street
Barrow, Wade, Guthrie & Co.
25 Broad Street
Loomis, Conant & Co.
30 Broad Street
Marwick, Mitchell & Co.
79 Wall Street
One of the accountants received a somewhat uncordial reply,
which concluded:
96 History of Public Accounting
Your further statement "that as Accountants actively engaged in the audit and
examination of a number of varied businesses and enterprises, we unhesitat-
ingly say that the law as framed is absolutely impossible of application" causes
me very great surprise. My personal acquaintance with you and a number of
the other signers of the letters leads me to the belief that you have under-
estimated your capacity. Certainly the statement of objections made in your
letter is entirely insufficient to support the conclusion which you express. 56
After further exchange of letters, the tax discussion was closed by
the following letter from Attorney General Wickersham:
In your last letter you set forth in somewhat more detail the following propo-
sition: "But no system of accounting can give even approximately the ordinary
and necessary expenses actually paid within the year out of income in the
maintenance and operations of its business and properties."
I think the bare statement of that proposition would be received with very
great incredulity by most minds. Certainly, I am quite unable to assent to it.
However, it is now too late to attempt to recast the Corporation Tax amend-
ment bill on the basis of such proposition. 57
In Washington the accountants lost and the tax on corporation
income became law, but the law as written was never enforced, for
enforcement officials permitted determination of income on the
accrual basis. In one major respect the law would have helped the
accounting profession. Tens of thousands of corporations had failed
to keep books and records which reflected their actual net income,
and the law levied a tax on the corporation's income based on cash
receipts and cash disbursements; consequently these companies were
forced to set up accounting systems to determine their income. The
Treasury issued regulations under which the corporation paid a
tax on income measured by the accrual method, ignoring the word-
ing of the law. 58
^Editorial, "The Corporation Tax Correspondence," The Journal of Accountancy, VIII (August,
1909), 300.
5 mid„ p. 301.
^Robert H. Montgomery, Fifty Years of Accountancy, pp. S31-S34.
Public Accounting in the United States— 1896-1913 97
No strong opposition on the part of the corporations was en-
countered, for the rate was only 1 percent of net income, and the
Treasury Department followed the liberal policies set forth in its
regulations. This factor encouraged income tax proponents to spon-
sor an amendment to the United States Constitution which would
authorize Congress to levy a tax on income without resorting to the
subterfuge of continuing an excise tax measured by net income.
Public Attitude Toward the Prof ession
The work and attitude of the professional accountants and the
way they were looked upon by the general public appears to be a
unique feature of public accountancy, setting it apart from the other
professions.
In the public mind, the work of the accountant must be faultless
both in execution and in principle. Men in other professions may
be guilty of error and their standing will not be seriously impaired,
but the accountant is different in the minds of many: he must not
err, he is a man of correctness, and an error cannot be overlooked
or forgiven. This seemed to be the opinion of those who were en-
gaged in the public practice of accountancy during this period.
Thus in his work, service, and findings the accountant must act as
much for the other man as for the client who remunerates him.
The professional accountant has a responsibility to the client who
employs him, but his responsibility goes much farther. Business-
men and the public will at some time rely on the accountant's
opinion, either in granting credit or purchasing equities. It is evi-
dent that the public accountant has a dual responsibility in the
performance of his work.
Accountancy Service for Lawyers
Lawyers were the last to recognize that accounting was a separate
and distinct profession or that it played any role in the affairs of
the business world. They persisted in looking upon the accountant
as no more than a well-informed bookkeeper and held in contempt
his claims that he was something more.
The lawyer's profession and that of the public accountant touch
at many points. The statement of what a certified public accountant
98 History of Public Accounting
is should be sufficient to show to the lawyer how he may use the
services of a certified public accountant in cases involving accounts
that are complicated. Regardless of a lawyer's versatility, it would
be difficult for him to have a thorough knowledge of the account-
ing problems of business unless he is a trained accountant. When
he undertakes to draw up contracts dealing with accounts, he is
likely to do an injustice to his own client, through lack of clear
thought on the nature of income in the case of an estate. Receipts
of interest are not always all income, but may be part principal and
have led to controversy, because of the negligence of the attorney
in failing to clarify the wish of a testator when a will is drawn.
Much aid has been rendered by the accountant to the lawyer in
preventing misapprehension in accounting matters and litigation.
In the case of a merger of several companies the employment of
an accountant is now almost universal. No one else can render as
efficient service in determining the basis on which the division of
the relative interests must be made. There are so many elements
affecting this basis that only a well trained accountant can adjust
them in a satisfactory manner.
When a new company is organized it is not unusual for the at-
torney to supervise the opening entries showing the payment of
stock subscriptions, and often there are errors in fundamental ac-
counting principles which cause serious trouble. In drawing up the
bylaws of the corporation there are often points to be covered that
require a knowledge of business that the attorney does not always
possess. Again, the lawyer may insert the provision that the ac-
counts shall be audited once a year, but he does not specify the kind
of auditor nor who shall appoint him. From the accountant's point
of view it is advisable that the auditor be a professional accountant
and that he be elected by the stockholders.
Another way in which the accountant has come to be of service
to the attorney is by acting as receiver. The accountant's varied
experience in studying all the conditions of large business enter-
prises fits him for dealing with the complicated problems that arise
in receivership matters. His knowledge of commercial law is suf-
ficient to enable him to know when he needs to refer a matter to
the attorney. A proper knowledge of these facts by the legal pro-
fession in the United States has led to a better understanding be-
tween the two professions. The attorney has come to appreciate the
fact that the accountant recognizes and fulfills his duty to point out
Public Accounting in the United States— 1896-1913 99
those things which are unfavorable as well as those which make for
the interests of the client.
The Supreme Court of the State of New York, in 1903, recog-
nized the usefulness of the accountant when they made their first
appointment of receivers. The appointment was in connection with
a partnership action. It was not clear to what extent the account-
ants were allowed to control the business while it was in receiver-
ship. 59
The late 1880's represented a period of undoubted development
and advancement in accountancy both in better knowledge of the
profession and its requirements, and in the fact that financial men
generally began to understand the nature of its work and service.
In 1891 the firm of Jones, Caesar and Company was appointed as
auditor and accountant to the United States Steel Corporation, an
event that contributed much to creating a realization of the real
meaning of accounting and auditing on the part of the business
world.
Another trend that tended to further the development of the
profession was the incorporation of industrial concerns under the
laws of the various states. The securities of these corporations were
issued and offered to the investing public. In most of these corpora-
tions, public accounting firms were employed to make examinations
and reports on the financial condition and earnings of these corpor-
ations before their securities were offered for public subscription.
The first industrial firm so incorporated whose securities were of-
fered to the public with an accountant's certificate attached to the
prospectus was the firm of John B. Stetson and Company of Phila-
delphia. 60
SUMMARY
From 1896, accounting became a real profession. The quality,
extent and diversity of the practitioners' knowledge increasingly
gave a status to the profession, and an atmosphere of learning, pre-
cision, and trustworthiness. When it was perceived that these in-
fluences formed the foundation and real essence of the profession,
59 "Accountancy in the States," The Accountant, XXIX (November, 1903), 1,392.
8°" Accountants as Directors," The Journal of Accountancy, LXIX (March, 1940), 16S.
100 History of Public Accounting
the public, the businessman, the banker, and even the lawyer gen-
erally recognized that accountancy was a good and beneficial thing.
The profession had gained such prestige among businessmen by
1909 that corporations of the better class were voluntarily adopt-
ing the practice, obligatory in England under the Companies Act
of 1900, of retaining public accountants to make periodic audits.
Thus, in the auditing of accounts of corporations, in the organi-
zation of accounting systems, in the investigation of properties for
prospective purchasers, and in the revision of business methods,
the accountant found himself by 1913 in a favorable position in the
eyes of the business community. He now found a constantly en-
larging sphere of usefulness to the businesses of the United States
and to the public as well as to certain other longer established
professions.
CHAPTER VI
Public Accounting in the United States, 1913-1928
By 1913 the profession of public accounting was established.
Much of the original impetus had been given by accountants who
came to this country from England and Scotland. These account-
ants from abroad continued to have their influence, but the major
portion of the members of the profession were now native Ameri-
cans educated in the United States.
The period break of 1913 was chosen because of the tremendous
effect of the income tax law on public accounting, ushering in as it
did a new era for the profession. The date 1928 marks the last full
year of an unprecedented prosperity that had built up in the Ameri-
can economy since the beginning of World War I.
Not all the developments of this period advanced the profession.
The internal difficulties are evident in the fact that several national
organizations purporting to represent the profession were function-
ing at the same time. It may have helped the profession that the
internal differences were brought out very early in its development;
but, on the other hand, it presented a divided front to the business-
men of this period. The separate sections of the profession were
not to be entirely united by the end of this period. The period was
marked by additional state adoptions of C.P.A. laws, and by the
further expansion of public accounting firms.
Fiscal Events Affecting Accounting
The Sixteenth Amendment and Accounting {1913)
One of the fiscal developments of this period which gave the pro-
fession an additional function was the enactment of a constitutional
income tax law. The enactment of a 1909 franchise tax of 1 per-
cent as measured by corporate profits encountered no strong op-
position. This factor among others encouraged proponents of an
102 History of Public Accounting
income tax to redouble their efforts. But the 1894 act had been
declared unconstitutional by the United States Supreme Court in
the Pollock v. Farmer's Loan and Trust Co. case. It was necessary
therefore that a constitutional amendment be secured before an
income tax could be enacted.
By the latter part of February, 1913, the necessary number of
states -had ratified the sixteenth amendment to the Constitution,
thus paving the way for the enactment of an income tax law on
October 3, 1913, effective as of March 1, 1913.
Accountants were concerned about the enactment of an income
tax law in 1913 because of their experience with the corporation
tax law of 1909. Members of Congress had been unwilling to take
advice from accountants before the enactment of the 1909 law,
with the result that when it was enacted it was found unworkable.
The public accountant who was to be called upon to prepare
the tax reports for large numbers of taxpayers under an income
tax law felt a vital interest in the terms of the law and the pro-
visions for collection. Fortunately Congress asked and received the
advice of public accountants before the final income tax bill was
submitted to either house. 1
The income tax measure, which constituted a part of the Under-
wood-Simmons Tariff Bill, passed both houses of Congress as antici-
pated. 2 The tariff law of 1913, being "an act to reduce tariff duties
and to provide revenue for the government and for other purposes."
was approved by the President on October 3, 191 3. 3
The first income tax was a graded one, starting with a normal
tax of 1 percent on all income in excess of $3,000 and increasing by
degrees through the operation of an additional tax to 7 percent
upon that part of a person's net income which exceeded $>500,000. 4
The enactment of the individual and corporation income tax law
might have had an adverse effect on the profession had it occurred
before sufficient numbers of qualified accountants were available.
By 1913, however, there was already a group of well- trained mem-
bers of the accounting profession ready to assist both business
people and the government in this new project. The nucleus had
Editorial, "A Federal Income Tax," The Journal of Accountancy, XV (January, 1913), 60.
2 Editorial, "The Income Tax," The Journal of Accountancy, XVI (October, 1913), 307.
"Editorial, "United States Income Tax," The Accountant, XLIX (August, 1913), 152.
4 John B. Niven, "Income Tax Department," The Journal of Accountancy, XVI (November, 1913),
384.
Public Accounting in the United States— 1913-1928 103
the immediate problem of helping hundreds of businessmen who
had not previously found it necessary to prepare a statement of
income and expenses. With the recognition which had previously
been given the profession it was natural for taxpayers to turn to
accountants for assistance in preparing their income tax returns. 5
A feature of the law gratifying to the public accounting profes-
sion was its provision that corporations, associations, and insurance
companies were at liberty to adopt the fiscal year in preference to
the calendar year upon notice of such intention duly filed. This
provision was not present in the 1909 tax law and caused the com-
panies a great deal of trouble in inventory taking and getting their
returns filed on time. The certified public accountants were in-
terested in this provision because it would enable them to spread
their work over the entire year. Clients would thus benefit from
more thorough auditing procedures. 6
One consequence of the income tax legislation was the inaugura-
tion of a new department, "The Tax Clinic," in The Journal of
Accountancy (beginning with the November, 1913, issue) dealing
specifically with income tax and its administration. John B. Niven
was the department editor.
In establishing this feature, the editors recognized that the in-
come tax law was to have a greater impact on the public accounting
profession than upon any other. The official journal of the account-
ing profession was prepared to publish the latest information on
new or additional income tax laws and regulations. It was felt that
the practitioner should have the official releases available from the
government as quickly as possible. The enactment of the 1909
corporation tax law and its administration had vastly increased the
work of public accountants, but that work load was far less than
the one which resulted from the new income tax law. 7
Even so, the law brought the public accountant into a company
only on a narrowly specialized engagement— income tax returns.
The accountant undoubtedly brought to the client's attention the
many other services that he was prepared to render. Tax engage-
ments, for example, often led to the revision of accounting systems,
in an effort to give the management more financial information;
5 "Income Tax in the United States," The Accountant, XLIX (December, 1913), 861.
«Editorial, "The Income Tax," The Journal of Accountancy, XVI (October, 1913), 307.
'Editorial, "A New Department," The Journal of Accountancy, XVI (November, 1913), 373.
104 History of Public Accounting
they led also to other accounting services which the client had no
idea could be handled for him. 8 In many cases the accountant found
that the records maintained by businesses were inadequate: it was
necessary to reconstruct the transactions in an effort to determine
the taxable net income, to design a chart of accounts to facilitate
the determination of net income, and to keep the records up to date
in order to reflect the earnings as time went on.
Public accountants were empowered to render further service to
their clients in 1924 when the Board of Tax Appeals recognized
attorneys and certified public accountants as the only representa-
tives qualified to appear for taxpayers before the United States
Board of Tax Appeals. 9
War and Accounting (1916)
The enactment of a general income ta^ law in 1913 and the rapid
increase in rates of tax that went into effect in 1917 were fiscal de-
velopments that widened the scope of accounting practice and led
to a greatly enhanced standing for accountants. 10 Soon after the
enactment of this bill an amendment was passed providing that
income in general should be determined in accordance with the
method of accounting regularly employed by the taxpayer. The
broad scope of this amendment was later modified by rulings of
the Bureau of Internal Revenue and the Board of Tax Appeals.
Rules and regulations issued by the Internal Revenue Department
set forth specific methods of determining taxable income, not neces-
sarily in accordance with the accounting methods previously em-
ployed.
The problems of the profession and of the taxpayers were further
complicated when the records of the business had to be revised to
reflect statutory net income. The specific definitions set forth in the
rules of the Internal Revenue Department brought about the need
for adjusting the net income of a business computed according to
8 Editorial, "Brighter Prospects of Accountancy," The Journal of Accountancy, XVI (December,
1913), 459.
"Editorial, "Practice before the Tax Board," The Journal of Accountancy, XXXVIII (November,
1924), 20S.
10 George O. May, "The Economic and Political Influences in the Development of the Accounting
Profession," in Fifty Years of Service, 1898-1948 (Newark, N. J.: New Jersey Society of Certified
Public Accountants, 1948), p. 11.
Public Accounting in the United States— 1913-1928 105
good accounting principles to reflect income as defined in the law
and clarified by rules of the department.
Title 2 of the Federal Revenue Act of October 3, 1917, "an act
to provide revenue to defray war expenses and for other purposes,"
was termed the "war excess profits tax." The purpose of the law
under this title was to impose a tax on those profits in excess of
normal profits (as indicated by earnings made in a prewar period)
made directly or indirectly through increased business arising out
of the abnormal conditions of war. 11
By this time the income tax law and the rules and regulations of
the Bureau of Internal Revenue were so complex that an expert
w T as needed to meet the requirements of the law. The public ac-
countant was recognized as an expert who could represent business
as well as government. Undoubtedly, excess profits tax legislation
was one of the forces which elevated the public accountant from
the status of master bookkeeper to that of a member of an honored
profession.
The new and highly complex provisions of the war revenue bills,
coupled with very high rates of taxation, provided the stimulus
which the profession needed to get general recognition by the
public. 12 The leaders among the practitioners of the day were quick
to grasp the significance of the opportunity for service and were
able, by word and performance, to convince the business world that
the public accounting profession had the intelligence and initiative
to cope with the new problem. 13
The auditor was called with more and more frequency into con-
ference for advice on financial transactions: not only the proper
treatment of completed business, but also the best method of
handling contemplated future business dealings. As a consequence,
the certified public accountant was soon accepted as the most com-
petent advisor in tax matters and was shortly to be regarded as the
professional man best qualified to serve in many other important
business advisory capacities. It seems reasonable to assume that the
counsel of a few outstanding members of the profession had been
sought by many clients prior to 1917, but before World War I the
^Editorial, "Defects of Title 2 of the Federal Revenue Act of October 3, 1917," The Journal of
Accountancy, XXV (February, 1918), 81.
^Norman L. McLaren, "The Influence of Federal Taxation upon Accountancy," in Fiftieth Anni-
versary Celebration (New York: The American Institute of Accountants, 1937), p. 128.
"Editorial, "Preparation of Tax Returns," The Journal of Accountancy, XXV (June, 1918), 447.
106 History of Public Accounting
certified public accountant was primarily an auditor of past transac-
tions. 14 It was certainly complimentary to the public accounting
profession that the leading businesses consulted their auditors. The
old "holler and check" function of the auditor blossomed into more
valuable undertakings and responsibilities. 15
War Contracts and the Public Accountant
Another important development during the second decade of the
new century had to do with engagements resulting from World
War I. The public accountants were called upon to act as corre-
spondents for English Chartered Accountant firms on war con-
tracts. The entrance of the United States into the war increased
the demand for accountants.
One of the more responsible engagements resulting from the war
was undertaken by a national firm, Arthur Young and Company,
which was retained by J. P. Morgan and Company. The latter or-
ganization had acted as purchasing agent of munitions for the
British and French governments. 16
The J. P. Morgan and Company assignment developed into a
detailed study of all the transactions relating to purchases under
these contracts. The detailed audit which followed contained not
merely a check of the payment of vouchers, but went further and
traced the receipts of goods from the time they left the contractors'
plants to the time they were put on board ship. This was probably
the first and largest audit conducted with such detail under modern
business conditions.
Another engagement involved a company that had been making
machines for the British government and had fallen down on de-
liveries. This failure was due largely to the frequent change in
specifications for these machines— a result of abnormal develop-
ments in the industry. Arrangements were made whereby the com-
pany would be reimbursed by the British government for the cost
incurred. The accountants were engaged, as representatives of the
14 Norman L. McLaren, "The Influence of Federal Taxation upon Accountancy," The Journal of
Accountancy, LXIV (December, 1937), 435.
15 Norman L. McLaren, "Evolution of American Accountancy" (unpublished typescript), p. 5.
l6 Arthur Young, Arthur Young and the Business He Founded (New York: privately printed, 1948),
p. 31.
Public Accounting in the United States— 1913-1928 107
British government, to determine the cost of goods manufactured.
Arthur Young and Company was also given an assignment related
to the manufacturing of Enfield rifles for the British government.
Three firms were involved: the Remington Arms Company of Dela-
ware, the Remington Union Metallic Cartridge Company, and the
Winchester Repeating Arms Company. Before the time of the en-
gagement of the public accountants, the companies had not made
many deliveries, although they had made large expenditures for
building, machinery, and equipment. Arrangements were made
between the government and the companies whereby the com-
panies would be reimbursed for their costs up to some date in
October, 1916; from then on they would continue to complete the
contracts at cost. Arthur Young and Company was engaged to de-
termine those costs.
Shortly thereafter the British representatives felt that the de-
termination of such costs by this firm was too one-sided a matter, and
another firm of accountants was called in. Arthur Young was to act
for the companies and the other firm for the British government. 17
Then, when the United States entered World War I, numerous
special investigations came to the office of Arthur Young and Com-
pany, many of which involved companies owned by enemy aliens.
After the war, when additional business resulted from the merger
of several small companies, the accountant was frequently called
upon for advice and assistance. As an example, this firm of ac-
countants was requested in 1919 to draw up a plan for the merger
of the four largest chemical companies in the country. The plan
was drawn up with the assistance of the junior executives of the
companies involved, and presented for the approval of the com-
panies. This job was completed by the firm of Arthur Young and
Company before the end of 1920. 18
These experiences are mentioned as representative of the pro-
fession; it seems safe to assume that engagements of this type were
also undertaken by other firms during this period. Thus the period
of the first World War helped bring the profession of accountancy
to the forefront. Fortunately, the early leaders of the profession had
trained enough assistants to meet this expanding demand for their
services.
^lbid., p. 34.
™lbid., p. 37.
108 History of Public Accounting
Advisory Committee to the Council of National Defense
Evidence of the wider scope of the profession's functions can be
seen in the appointment by the president of the Institute of an
advisory committee to the Council of National Defense, composed
of six cabinet officers, for closer liaison between the profession and
the government.
The following letter from the president of the Institute to the
members of the American Institute of Accountants gives in detail
the steps accountants in America had taken in the war organization,
and it also demonstrates the patriotism of the profession. 19
20 Vesey Street, New York
April 3, 1917
To the Members of the American
Institute of Accountants
Dear Sirs,
For some months past correspondence and interviews have been taking
place between first the Naval Consulting Board and later the Director of the
Council of National Defense, as to what Accountants could do in the event of
our country's being engaged in war.
These preliminaries culminated in the appointment of the following com-
mittee to represent the Institute:
Edward L. Suffern, Chairman
Robert H. Montgomery
H. A. Niles
Elijah W. Sells
Arthur W. Teele
The President, ex officio
A. P. Richardson, Secretary,
and this committee has been accepted as a sub-committee of the advisory
committee to the Council of National Defense, the council, as you no doubt
are aware, consisting of six cabinet officers.
The committee has taken up its work, and had its first meeting with the
director of the Council of National Defense, the chairman of the Munitions
Committee, and its counsel at Washington on Thursday last.
What will ultimately be required of the Committee cannot be forecast, but
^"American Institute of Accountants," The Accountant, LVI (April, 1917), 410.
Public Accounting in the United States— 1913-1928 109
it will act in the advisory capacity without remuneration, matters having
progressed so far I feel that you should be informed of the action taken.
It is desirable that the membership should act as a body rather than as
individuals. The best results can be obtained only by united efforts, and the
Council of National Defense regards the Institute as the mouthpiece of the
Accounting profession.
As we are now in a state of war with Germany, and Congress will declare
itself on the question in the near future, will you please advise me whether
you, or any members of your staff, are desirous of offering your services to the
Government, either for accounting work in the department or for such work
as the Government may later wish undertaken by the profession either gratui-
tously or on terms to be determined.
I ask this so that the Committee may be in a position to act promptly, if
occasion arises.
I would suggest that members distant from New York wire me their replies.
Very truly yours
W. Sanders Davies
President
The functions of the committee to the Council of National De-
fense were advisory in character, and it held itself ready to consult
with any governmental agency concerning any matters involving
questions of accounting whether they related to principles, practice,
or service. 20 The members of the committee acted as individual
advisors to different agencies of the government rather than as a
group. For example, Teele was a civilian member of the committee
appointed to consider the determination of property accountability.
Another of the committee members, Robert H. Montgomery, was
called into service. 21 The entire committee acted as accountancy
advisors to the War Industries Board. 22
Professional Organization
State C.P.A. Legislation
During the period 1913-1928 the enactment of C.P.A. legislation
spread. Maine passed its law in 1914. The following states
^American Institute of Accountants Year Book, 1917 (Brooklyn, New York: William G. Hewitt Press,
1917), p. 272.
mbid., 1918, p. 113.
22 Ibid., p. 115.
110 History of Public Accounting
passed laws during 1915: Arkansas, Iowa, Kansas, South Carolina,
and Texas. The next year Kentucky passed a public accounting
law. Oklahoma and South Dakota followed in 1917. Alabama,
Arizona, and Idaho passed laws in 1919, and Mississippi the next
year. In 1921 the last three states to enact legislation— Indiana, New
Mexico, and New Hampshire— passed such laws. After the Institute
had secured a national charter and the American Society was func-
tioning, the District of Columbia had a law passed by Congress in
1923. The accompanying map illustrates those developments.
Question of Constitutionality
In the original C.P.A. law of the state of Oklahoma there was a
provision restricting the practice of public accounting to certified
public accountants. This appears to have been the first such clause
in public accountancy legislation. The act specifically prohibited a
person from practicing as a public accountant unless he had been
certified under the provisions of this act. In the legislation of other
states it had been provided that nothing in the law should be in-
terpreted as prohibiting anyone from practicing as a public account-
ant. These laws had merely restricted the use of the "C.P.A." title.
The American Institute and state boards of accountancy waited to
see the result of such a clause in the public accounting law. 23
The year 1924 brought the answer for which the American In-
stitute of Accountants and the boards of other states and state or-
ganizations had been waiting, when the State Board of Accountancy
in Oklahoma attempted to enjoin a group of persons from practic-
ing as uncertified public accountants. The Board described this
function as:
the holding themselves out to the public, and practicing, as professional and
expert accountants and auditors for compensation, without having first ap-
peared before the State Board of Accountancy and stood examination and
received a certificate from that board authorizing them to engage in that busi-
ness as professional accountants. 24
^Editorial, "Oklahoma C.P.A. Law," The Journal of Accountancy, XXIII (May, 1917), 368.
^State v. Riedell
Public Accounting in the United States— 1913-1928
111
=> a:
o U-l
112 History of Public Accounting
In October, 1924, the Oklahoma Supreme Court rendered a deci-
sion in the case of State v. Riedell, et al., which held that those
provisions in the Accountancy Act limiting the practice of account-
ancy to certified public accounting were unconstitutional.
In that case it was contended by the defendants that inasmuch as
the act seeks to prohibit the practice of professional accountancy
without a certificate issued by the State Board of Accountancy, it was
unconstitutional on the basis that it deprived the defendants of their
liberty and property without due process of law; that it deprived
them of their inherent right to liberty, the pursuit of happiness,
and enjoyment of the gains of their chosen profession; that it de-
nied, impaired, and disparaged the inherent rights of the defendants
to contract in matters of private concern and in which the public
at large and the public welfare, peace, health, and safety were not
concerned or involved; that it violated the Bill of Rights in creating
a monopoly; that it created an association to which is granted ex-
clusive rights and immunities, and that the exercise of police power
by the state in no way affected the public peace, health, safety, or
general welfare, and without any public necessity therefor.
It was the contention of the state that the act prohibited the
practice of the profession by one who had not passed the examina-
tion and received a certificate of qualifications, and the enactment
of the law was a police power of the state and not violative of the
Constitution or any of its provisions.
The decision of the State Supreme Court was stated as follows:
We think after a careful consideration of the Act as a whole, it was clearly
the legislative interest to prohibit any one from practicing accountancy who
has not stood the examination and received the certificate.
It is agreed that every state has a law regulating the practice of accountancy
similar to this law, with the exception that no other state has attempted to
prohibit the practice by those not certified. . . . Under the laws of other states,
held to be valid, and under our law with sections 11 and 14 omitted, the only
advantage conferred upon certified public accountants is that of having their
qualifications ascertained, a degree conferred, and a certificate issued by a
board created by law for that purpose. . . . The effect upon the uncertified
public accountant is definite and certain. Whether it is because he stands on
his belief that the Act is void and elects to stand on what he believes to be
his constitutionally guaranteed rights, or because he is unable to stand the
examination, or is not a citizen of the United States or does not enjoy the
Public Accounting in the United States— 1913-1928 113
reputation of a good moral character, or has had his certificate revoked be-
cause of being convicted of a felony, or found guilty of conduct involving
moral turpitude, or having certified to false or fraudulent statements in rela-
tion to an audit, or fraud or misrepresentation in application for the certificate,
the result is the same; that after he has devoted time, effort, and expense to
equip himself as an expert accountant, he is prohibited from following that
calling and those dependent upon him are deprived of the fruits of that train-
ing and investment, and he is caused to seek other employment where that
investment and training are of no avail for their support . . . our conclusion,
therefore, is that the act, in so far as it prohibits uncertified public accountants
from holding themselves out as professional or expert accountants or auditors
for compensation or engaging in the practice of that profession, is in conflict
with the spirit and express provision of the constitution and void, in this, that
it abridges the right of private property and infringes upon the right of con-
tract in matters purely of private concern, bearing no perceptible relation to
the general or public welfare, and thereby tends to create a monopoly in the
profession of accountancy for the benefit of certified accountants, and denies
to uncertified accountants the equal protection of the laws, and the enjoyment
of the gains of their own industry. The defendants are not engaged in the
exercise of a franchise, but a constitutionally guaranteed right. 25
After the State Supreme Court ruling that sections 11 and 14 of
the accountancy law were unconstitutional, the law was then made
to conform to those of other states possessing accountancy legislation.
At the next session of the Oklahoma legislature the law was re-
written leaving out the sections which had previously been declared
unconstitutional. For a short time then the State Board of Account-
ancy was operating without a law giving it a basis for operation.
A case which added greatly to the professional standing of ac-
countancy was /. Harold Lehman v. State Board of Public Account-
ancy, et al., in Alabama. The Supreme Court of the United States
held that the Alabama C.P.A. law was constitutional. That decision
by the Supreme Court of the United States for all practical purposes
placed the Alabama board in the same category as state boards gov-
erning the practice of medicine, law, and other professions. The
case is No. 170, October Ten, 1923, /. Harold Lehman v. State
Board of Public Accountancy, et al.
The Alabama case presented the first opportunity that the
mbiA.
114 History of Public Accounting
Supreme Court of the United States had had to pass on accountancy
legislation. In this case the plaintiff had been a practicing accountant
prior to the passage of the C.P.A. law, and the board had later cited
him to show cause why his certificate should not be revoked for
cause. The plaintiff sought to prevent action by the board on the
ground that the law was unconstitutional. It was claimed that the
determination by the board as to whether his certificate should be
revoked rested wholly within the arbitrary, uncontrolled, and un-
appealable judgment of the board. The Supreme Court of Alabama
had declared against the plaintiff on all points, but a writ of error
to the Supreme Court of the United States had been granted by the
Chief Justice. The Supreme Court affirmed the decision of the Ala-
bama Court, holding that there was no equity involved, as it could
not be determined in advance of the hearing that the board would
sustain the charge, and added:
official bodies would be of no use as instruments of government if they could
be prevented from action by the supposition of wrongful action. 26
National Associations
Some of the members of the American Association of Public Ac-
countants, considering it to be dominated by the New York mem-
bers, felt that a reorganization was necessary to make it a truly na-
tional group. The first official intimation of the need for a change
in the form of organization was the report presented by J. Porter
Joplin, president of the American Association of Public Account-
ants, at Seattle in 1915. In his report the president drew attention
to the existing conditions and asked for authority to appoint a com-
mittee to investigate matters and recommend such changes as might
seem desirable. This committee was appointed, and it reported to
the board of trustees of the association at its meeting in April, 1916.
The board of trustees ratified the proposed change and recom-
mended to the American Association that it adopt the plan.
In his address to the Association in Seattle in September, 1915,
"Editorial, "Court Decisions Affecting Accountancy," The Journal of Accountancy, XXXVII (March,
1924), 214.
Public Accounting in the United States— 1913-1928 115
President Joplin called attention to the lack of uniformity in the
standards of both educational and professional attainments of the
several states having C.P.A. laws. He emphasized the necessity for
the establishment of a greater measure of uniformity and control. In
line with this idea he suggested that a committee be appointed to
study recommendations. The Association approved the president's
suggestion, and the committee was appointed September 21, 1915.
The committee report was submitted to the trustees early in 1916.
The following is a summary of that report: It was felt by the com-
mittee that the founders of the Association in 1887 had hoped for a
national organization that would govern the profession from within.
But after the passage of several state C.P.A. laws the emphasis was
shifted to state regulation, although some hopes were entertained
that national regulation of public accountancy might be secured by
Congressional action substantially similar to that of the states.
From the outset it was found to be impossible to have strict uni-
formity in the state laws because of the problem involved in dealing
with forty-eight different legislatures. This difficulty could be seen
in the wide variation in the administration of the first two laws-
New York and Pennsylvania. In the former, the administration was-
vested in the Board of Regents of the State University of the State of
New York; in the latter, in a Board of Examiners appointed by the
governor. 27
It had been pointed out at the St. Louis Congress of 1904 that
some of the state laws had serious defects. In almost every state in
which there was legislation, it effectively prevented certain account-
ants, some of whom were members of the American Association,
from securing certificates. Thus a large part of the practice of public
accountancy was carried on by those who did not practice as certified
public accountants. This problem was aggravated because there was
no provision for reciprocity between states in the early C.P.A. laws.
Unfortunately, there was a very wide range in standards for
taking the C.P.A. examination, as to both preliminary education and
professional training. Some states required no preliminary education
or training, while others had very high standards demanding an ex-
tensive course in accounting plus several years of experience.
In view of the foregoing, the unavoidable conclusion of the com-
""Accountancy in the States," The Accountant, LV (September, 1916), 398.
116 History of Public Accounting
mittee was that in some states the title C.P.A. was in low repute.
Consequently the holding of a certificate from one of several states
was not sufficient qualification for membership in the American
Association of Public Accountants.
It was felt by the Association that what was needed was some form
of yardstick which could be applied fairly to accountants in every
part of the country, and which would indicate to the business pub-
lic in every state that the accountants who had been measured by
it had at least attained a reasonable minimum level in preliminary
education and professional training. It was argued that the business
public demands rightfully that, upon entering the profession, an
accountant should have a sound education and should be adequately
trained to discharge the usual and ordinary duties of the profession;
and that his continued membership in a national body of account-
ants must be accepted as evidence that he has conducted himself
with reasonable regard to the obligations of his calling.
To foster the growth of the profession and its influence, and to
promote and conserve the interests of the business public, it was
suggested that the profession, as represented by a national organiza-
tion, should assume more directly the responsibility for the estab-
lishment of uniform standards of admission to, and the maintenance
of conditions for, membership in the organized body of the profes-
sion.
To discharge its duties properly, the American Association of
Public Accountants should be truly national in its scope, and
preferably it should have a national charter. This could only be
secured through Congress, and the committee doubted that a char-
ter could be obtained that would allow the profession to govern
itself. Hence they suggested that the organization should be incor-
porated under the laws of the District of Columbia, which had pro-
vision for the incorporation of educational and scientific bodies. 28
The new name of the organization was the Institute of Account-
ants in the United States of America. The term Institute was used to
stress the educational aspects of the professional association, and the
phrase in the United States of America was added to show that the
organization was to be a national one. 29
^"The Institute of Accountants in the United States of America," The Accountant, LV (November,
1916), 440.
™Ibid., p. 440.
Public Accounting in the United States— 1913-1928 117
Some accountants hoped that federal regulation of the profession
would follow, establishing accountancy on a national basis in the
United States. But this hope was doomed from the outset because
of the States' rights principle of regulating the profession within
each state. However, it would have been extremely difficult to get
such legislation. 30 A majority of the states had already passed some
form of C.P.A. law. If an attempt had been made to supersede these
laws with a federal law, a strong feeling against such a move would
have arisen because of the tradition of States' rights.
Provisions of the proposal were as follows: 31
(1) an organization embracing within its membership all of the reputable
practicing public accountants in the United States;
(2) that membership therein shall be individual rather than through other
societies;
(3) that the Institute, through its board of examiners, shall examine every
applicant for membership, that such examinations shall be adapted to the needs
of the profession, and be held at such places throughout the country as will
reasonably meet the convenience of applicants;
(4) that by virtue of the maintenance of uniform and reasonably high stand-
ards a helpful influence will be exerted by the Institute upon accountancy edu-
cation;
(5) that the profession of the entire country will be represented by a national
organization which will be not only responsive to the best thought of the pro-
fession, but will also be capable of maintaining its dignity and honor;
(6) that through the maintenance of proper standards of admission to and
continuance of admission a substantial recognition of the profession can be
secured from governmental trade bodies.
The drafts of the bylaws and constitution were submitted to the
Association on September 19, 1916, and approved. All members of
the American Association of Public Accountants in good standing
on that date became members of the American Institute of Account-
ants in the United States of America. There were 1,150 initial mem-
bers of the Institute.
80 " Accountancy in the States," The Accountant, LV (November, 1916), 398.
ffl "The Institute of Accountants in the United States of America," The Accountant, LV (November,
1916), 442.
118 History of Public Accounting
The first officers of the Institute were: 32
President W. Sanders Davies
Vice-Presidents Carl H. Nau and Harvey S. Chase
Treasurer Adam A. Ross
The American Institute of Accountants was not formed to sup-
plant either the various state societies of certified public account-
ants, or the C.P.A. laws of the various states. It had its genesis rather
in the effort to supplement both state legislation and state societies
and was at least a partial remedy for the defects which had developed
in the program that attempted to establish professional standards
and professional solidarity by enacting statutes and issuing certifi-
cates. 33
A group of state societies must inevitably be characterized by dif-
ferences of opinion, and in many cases, jealousies were to be ex-
pected. With all its merits, the American Association of Public
Accountants was, in the last analysis, considered by some to be only
a group of state societies.
The American Institute of Accountants, however, with member-
ship entirely irrespective of residence or of membership in a state
organization, was to represent the combined opinion and abilities of
all its members. If differences of opinion arose, they would be be-
tween members— not between organizations. 34
The name of the Institute was shortened in January, 1917, to The
American Institute of Accountants, dropping the words "in the
United States of America" for the sake of brevity. The new name
went into effect after a two-thirds vote of the members on January
22, 1917. 35
The National Association of Certified Public Accountants
National representation and peace in the public accountancy pro-
fession was short-lived: in 1921 came the formation of an association,
privately incorporated, which threatened to destroy the American
a2 Ibtd., p. 444.
^Carl H. Nau, "The American Institute of Accountants," The Journal of Accountancy, XXXI
(February, 1921), 105.
"♦"The Record of the American Institute of Accountants," The Accountant, LVII (December, 1917),
453.
^American Institute of Accountants Year Book, 1917, p. 144.
Public Accounting in the United States— 1913-1928 119
Institute by issuing C.P.A. certificates to those who supposedly took
examinations and paid a fee. From the information available, the
emphasis was placed on the payment of a fee and the dues to the
organization and maintenance of a bond. The bond was maintained
to protect the members of this organization from suits brought
against them for negligence in the fulfillment of their duties.
The purpose of the National Association, according to its articles
of incorporation, was as follows:
The purpose for which said corporation is to be formed: To bring together
in one common union certified public accountants who are now, or heretofore
have been, engaged in the practice of professional accounting; also those who,
by virtue of education, personal endowments, technical training and experience
are qualified to perform the duties pertaining to professional accounting; to
provide for the admission of members; and when said members shall have
presented satisfactory evidence of knowledge in the theory and practice of ac-
counting, and shall have satisfactorily passed the prescribed qualifying examina-
tions of the Association, to admit said members to the degree of certified public
accountant, and to issue to such members the association's formal certificate to
that degree pertaining; to safeguard the rightful professional interests and
promote the friendly, and social, and public relations of the members of this
corporation; and to do all else incident, appurtenant, and germane to the
purpose and objects of this corporation. 36
This organization purported to give examinations to applicants
before issuing C.P.A. certificates, but actually it was simply a certifi-
cate mill from which anyone, without regard to training or expe-
rience, could secure a C.P.A. certificate for a price. In fact, during
its short life, 1920 to 1923, it issued something like three thousand
certificates to those taking "examinations."
The National Association of Certified Public Accountants gave
the following explanation for the bond required of members:
The National Association, representing the majority of its members' views,
always has held firmly to the belief that all human nature is weak at best, and
that that weakness extends even to Public Accountants, certified or otherwise.
^Editorial, "Certificate of Incorporation of the National Association of Certified Public Accountants,"
The Certified Public Accountant Bulletin, II (December, 1923), 4.
120 History of Public Accounting
With this belief, the National Association devised and supplied to its mem-
bers a fidelity bond for their protection and for the protection of the public. 37
This organization lasted only a short time. The government
brought suit against the National Association of Certified Public
Accountants to prevent, by injunction, the issuance of certificates
which purported to entitle holders to describe themselves as certi-
fied public accountants. The injunction was upheld by the Court of
Appeals in the District of Columbia, which based its decision on the
states' rights under the Constitution of the United States to regulate
the activities of a profession. If the association, a private corpora-
tion, had been held to have the right to issue certificates, serious dis-
agreements and confusion would certainly have resulted. The editors
of the Journal asserted that injury would have beeVi done to all
holders of certified public accountant certificates properly issued by
state boards. 38 Moreover, other corporations would have been
formed which would have completely destroyed the C.P.A. designa-
tion.
The federal courts were chosen to bring the injunction against
the association. This organization was operating on a nationwide
basis, and so, instead of fighting it in each of the states, suit was
brought in federal courts to settle the dispute with finality. Actually
court action against the National Association continued in several
states until 1928, one of the most prominent cases being tried in
Illinois.
The initiative taken by the federal government in the District of
Columbia against the National Association, as mentioned previously,
marks the point when the state's right to license public practitioners
was established. No further attempts have been made by private
organizations to issue certificates nor has the federal license been
sought for certified public accountants.
American Institute and Federal Charter
Before the injunction was issued against the National Association
of Certified Public Accountants in 1923, the organization's opera-
87 W. R. Anderson, "The Surety Bond," The Certified Public Accountant Bulletin, IV (October,
1925), 4.
^Editorial, "Injunction against National Association of Certified Public Accountants," The Journal
of Accountancy, XXXVI (July, 1923), 30.
Public Accounting in the United States— 1913-1928 121
tions had had a profound influence on the public accounting pro-
fession. The effect was of such proportions that the American Insti-
tute met in 1921 to clarify the use of the professional title C.P.A.
During the five years of its existence the Institute had grown in
membership and influence so rapidly that it appeared to members
of its council that the time had come for a charter of more general
scope and greater effect than was possible under the laws of the Dis-
trict of Columbia. Accordingly, a committee was appointed in
April, 1921, to prepare a bill for the incorporation of the Institute
by act of Congress. 39
At the next regular meeting of the council of the American In-
stitute of Accountants in Washington, September 19, 1921, the spe-
cial committee on a national charter reported that it had given con-
sideration to obtaining this from Congress. The committee expressed
the opinion that the charter could be obtained and proposed that
the following act of incorporation be introduced in Congress:
An Act to Incorporate The American Institute of Chartered Accountants
Be it enacted by the Senate and House of Representatives of the United
States of America in Congress assembled; that the persons following, namely:
Carl H. Nau James D. M. Crockett
William P. Hilton W. Sanders Davies
T. Edward Ross Page Lawrence
Joseph E. Sterrett Ernest Reckitt
John F. Forbes William A. Smith
J. Porter Joplin Edward L. Suffern
Waldron H. Rand J. S. Morris Goodloe
Frederick A. Ross Elmer L. Hatter
Elijah W. Sells Clifford E. Isyard
Frederic A. Tilton J. Edward Masters
William Jeffers Wilson James S. Matteson
Hamilton S. Corwin Robert H. Montgomery
Ernest Crowther W. Ernest Seatree
Edward E. Gore Joseph E. Hutchinson
Charles S. Ludlow Fedmond W. Lafrentz
Overton S. Meldrum William R. Mackenzie
^Editorial, "For Federal Incorporation," The Journal of Accountancy, XXXIII (January, 1922), 37.
122 History of Public Accounting
Adam A. Ross Walter Mucklow
Cassius M. William John B. Niven
Harvey S. Chase John R. Ruckstell
and Francis F. White
their associates and successors duly chosen are hereby incorporated and declared
to be a body corporate by the name, title and style of the American Institute
of Chartered Accountants, and by that name shall be known and have perpetual
succession with the powers, limitations and restrictions herein contained.
Section 2. That the objects for which said corporation is incorporated shall
be (a) To promote education in the science of accounts and in the practical
application of that science throughout the United States of America and its
territories and possessions.
(b) To maintain a library of works treating upon the subject of accountancy
and upon related subjects, and to encourage the production of such works.
(c) To publish books, pamphlets and periodicals for the increase of informa-
tion and education in the science of accounts.
(d) To establish and maintain standards of qualifications of persons who
desire to enter into practice as professional public accountants and who desire
to be known and designated as American Chartered Accountants.
(e) To receive and hold by gift, bequest, device, grant or purchase, any real
or personal property, and to use and dispose of the same for the purpose of the
Corporation.
Section 3. That the government of said corporation shall be vested in a coun-
cil composed of not less than thirty-five members, not more than five of whom
shall be residents of the same state or territory.
Section 4. That no part of any net income or profit earned or realized by said
corporation shall inure to the personal gain of any individual or be devoted
to any purpose foreign to the objects herein set forth.
Section 5. That said corporation may make all by-laws, rules and regulations
not inconsistent with law that may be necessary or expedient to accomplish the
purposes of its creation; and it may hold real estate and personal property in
the United States and any foreign country for its proper use and purposes to an
amount not exceeding two million dollars.
The principal office of said corporation shall be in the City of New York,
in the State of New York, but it may establish and maintain offices, and hold
regular or special meetings in such places as its by-laws may provide. 40
The bill as proposed by the original committee was not introduced
in Congress. It was moved before the report was passed that as an
amendment the words "Certified Public Accountants" be substi-
*°"Council Meeting Proceedings," in American Institute of Accountants Year Book, 1921, p. 82.
Public Accounting in the United States— 1913-1928 123
tuted for "Chartered Accountants" in the committee's report, but
the suggested amendment was lost. 41 The occasion for the amend-
ment to the original draft of the proposed federal charter was the
formation of a competing organization, the American Society of
Certified Public Accountants. Before the end of 1921 the American
Society was formally organized as a federation of the state societies
with the avowed purpose that it
shall be to protect and foster the certificate of certified public accountants, as
granted by the States and political subdivisions of the U.S. of America. 42
The American Institute then revised the bill requesting federal
incorporation and excluded the "chartered accountant" provisions.
The attempt to eliminate the designation only added to the con-
troversy among the members of the national organization. The first
purpose of the Institute, "to unite the accountancy profession of
the United States," was in serious jeopardy. Actually the difference
of opinion brought about a split and the formation of another na-
tional accounting organization— The American Society of Certified
Public Accountants. 43 This organization will be discussed in more
detail later in this chapter.
Federal Incorporation of the American Institute of Accountants
The council of the Institute continued in its efforts to obtain a
federal charter. This had been one of the original objectives when
the American Institute of Accountants was formed in 1916.
Another draft of a bill was drawn, changing certain sections, and
this later draft was finally introduced by Representative Rodenberg
of Illinois, December 9, 1921, and referred to the Committee on
the District of Columbia. This reference, however, was erroneous,
and the bill was transferred to the Committee on the Judiciary. 44
The text of the bill, introduced on December 9, 1921, follows:
*lbid.
^Alexander S. Banks, "Problems Now Confronting they Public Accounting Profession," The Certified
Public Accountant, III (January, 1924), 17.
"Carl H. Nau, "The Aims of the Institute," The Journal of Accountancy, XXXI (May, 1921), 322.
**Editorial, "Federal Incorporation of the Institute," The Journal of Accountancy, XXXIII (April,
1922), 287.
124 History of Public Accounting
67 th Congress
2 D Session
H.R. 9446
In the House of Representatives
December 9, 1921
Mr. Rodenberg introduced the following bill; which was referred to the Com-
mittee on the District of Columbia and ordered to be printed.
A Bill
To Incorporate the American Institute of Accountants
Be it enacted by the Senate and House of Representatives of the United
States of America in Congress assembled, That the persons following, namely:
Carl H. Nau, John B. Niven, Arthur W. Teele, Joseph E. Sterrett, John F.
Forbes, J. Porter Joplin, Waldron H. Rand, Frederick A. Ross, Elijah W. Sells,
Frederic A. Tilton, William Jeffers Wilson, William R. Tolleth, Ernest Crow-
ther, Edward E. Gore, Charles S. Ludlow, Overton S. Meldrum, Adam A. Ross,
T. Edward Rbss, William Hilton, Frederick Hurdman, James D. M. Crockett,
W. Sanders Davies, Page Lawrence, Ernest Reckitt, William A. Smith, Edward
L. Suffern, J. S. Morris Goodloe, Elmer L. Hatter, Clifford E. Isyard, J. Edward
Masters, James S. Matteson, Robert H. Montgomery, Albert T. Bacon, Joseph
E. Hutchinson, senior, Charles E. Mather, William R. Mackenzie, Walter Muck-
low, John R. Ruckstell, and Lewis G. Fisher, their associates and successors duly
chosen, are hereby incorporated and declared to be a body corporate by the
name, title, and style of the American Institute of Accountants, and by that
name shall be known and have perpetual succession, with the powers, limita-
tions, and restrictions herein contained.
Section 2. That the objects for which said corporation is incorporated shall
be-
(a) To promote education in the science of accounts, and in the practical
application of that science, throughout the United States of America and its
territories and possessions.
(b) To maintain a library of works treating upon the subject of accountancy
and upon related subjects and to encourage the production of such works.
(c) To publish books, pamphlets, and periodicals for the increase of infor-
mation and education in the science of accounts.
(d) To establish and maintain standards of education for, and to pass upon
and determine the qualifications applying to it for membership.
(e) To issue its diplomas attesting the degree of proficiency in the science
of accounts of such persons as may submit themselves to it for examination
and to confer upon such persons as it may deem entitled thereto such degree,
title, or designation as is not inconsistent with existing laws or with established
educational ethics.
(f) To receive and hold by gift, bequest, device, grant, or purchase any real
Public Accounting in the United States— 1913-1928 125
or personal property and to use and dispose of the same for the purposes of
the corporation.
Section 3. That the government of said corporation shall be vested in a
council composed of not less than thirty-nine members, not more than six of
whom shall be residents of the same state or territory.
Section 4. That no part of any net income or profit earned or realized by
said corporation shall inure to the personal gain of any individual or be de-
voted to any purpose foreign to the objects herein set forth.
Section 5. That said corporation may make all by-laws, rules, and regulations
not inconsistent with law that may be necessary or expedient to accomplish
the purpose of its creation, and it may hold real estate and personal property
in the United States and any foreign country for its proper use and purposes
to an amount not exceeding $2,000,000.
The principal office of said corporation shall be in the City of New York, in
the State of New York, but it may establish and maintain offices and hold
regular or special meetings in such places as its by-laws may provide. 45
Changes from First Bill Drafted
The first major difference or change from the original draft was
the inclusion of a subsection authorizing the issuance of
diplomas, attesting the degrees of proficiency in the science of accounts of such
persons as may submit themselves to it for examination and to confer upon
such persons as it may deem entitled thereto such degree, title, . . . with exist-
ing law. . . .
Here is found the acceptance of the C.P.A. designation as prescribed
by the state laws of the several states.
In the first proposal one of the objects of the American Institute
of Accountants under this charter was:
To establish and maintain standards of qualifications of persons who desire to
enter practice as professional public accountants and who desire to be known
and designated as American Chartered Accountants.
^Editorial, "For Federal Incorporation," The Journal of Accountancy, XXXIII (January, 1922), 39.
126 History of Public Accounting
It is significant that the following section was substituted for the
one above:
To establish and maintain standards of education for, and to pass upon and
determine the qualifications of persons applying to it for membership.
It would appear from the wording of the original draft that the
American Institute of Accountants would have the power to deter-
mine who was eligible to practice public accounting. In the final
draft the emphasis was shifted to the determination of those eligible
for membership in the organization. This change may have been
made to avoid the claim that the organization would have had a
monopoly and that the Institute would have violated States' rights
in determining who could practice accounting.
Another change in the proposed charter was the increase in the
number of members on the Council from thirty-five to thirty-nine
with no more than six from one state instead of five. This alteration
was made to impress upon the members as well as the public the
fact that the Institute was a national organization.
It was suggested prior to the federal incorporation that the only
way to regulate the public accounting profession was to set up
federal certification procedure. Had this been brought forth in a
positive way, the ever-present States' rights principle would have
in all probability defeated any such proposal.
If the bill had been passed by Congress, the American Institute
of Accountants would have had for the first time a certificate of
incorporation of a national character. It is significant that, in the
final bill submitted by the Council of the Institute, the title "Char-
tered Accountant" was excluded. It seems logical to assume that
the reason for the exclusion of this title was an effort to smooth the
already ruffled feathers of many members of the profession, some of
whom had organized the American Society of Certified Public Ac-
countants by this time. Another possible reason is that all of the
states' public accounting laws had included in them the distinguish-
ing title of "C.P.A." It would then seem unreasonable for the
Institute to reject the title which had come to be identified with
public accountancy by those in business and the general public.
Some members of the American Institute of Accountants felt
Public Accounting in the United States— 1913-1928 127
that membership in that organization had become the real measure
of professional ability and standing, rather than the possession of
a C.P.A. certificate. Hence there was an attempt to change the
name of the Institute to the Institute of Chartered Accountants
and to dispense with the C.P.A. designation as far as their organi-
zation was concerned. But this idea was dropped after the Society
was formed with the avowed purpose of maintaining and protect-
ing the C.P.A. certificate as granted by the several states. 46
American Society of Certified Public Accountants
Dissatisfaction with the policies of the American Institute was a
factor which led to the organization of the Society in 1921. The
Institute was still admitting noncertified public accountants to
membership and was not promoting the passage of additional C.P.A.
laws with the aggressiveness that some members felt it should. On
the other hand some state examinations were not recognized by
the Institute, and C.P.A. s in those state were excluded from mem-
bership in the Institute unless they submitted to another examina-
tion given by the Board of Examiners of the Institute. Then, too,
it was thought by some that the American Institute of Accountants
had not taken any positive action against the National Association.
Hence a number of members of the Institute felt that there was
room for an organization composed exclusively of certified public
accountants, which could continually emphasize the value of the
certificate and devote a major portion of its energies to develop-
ment of state societies. These members met in Chicago under a
charter obtained from the District of Columbia and formed the
American Society of Certified Public Accountants. 47
The American Society of Certified Public Accountants repre-
sented the "liberal" element of the public accounting profession and
the American Institute of Accountants represented the "conserva-
tive" element. 48 The Society was almost exclusively concerned with
the C.P.A. movement; in fact, it wanted to push for laws in every
"D. W. Springer, "Institute-Society-Institute," The Certified Public Accountant, XVI (December,
1936), 744.
47 Robert H. Montgomery, Fifty Years of Accountancy (New York: Ronald Press Company, 1939),
p. 69.
^Henry J. Miller, "The American Society and the American Institute," The Certified Public Ac-
countant, V (December, 192S), 157.
128 History of Public Accounting
state. Once a person received a C.P.A. certificate granted by a state,
he was eligible for membership in the Society.
The American Society of Certified Public Accountants was or-
ganized in Chicago on December 12, 1921, as a result of a series of
events in the field of public accountancy at that time. The three
immediate and compelling causes were:
(1) The organization of the "National Association of Certified Public Ac-
countants" in Washington on June 4, 1921, which organization was designed
to destroy the title "C.P.A."
(2) The failure of the American Institute of Accountants, at its annual
meeting in September, 1921, to take any official action against or notice what-
ever of the "National Association" but instead made a move to abandon sup-
port of the C.P.A. certificate and adopt the title "Chartered Accountant," and
(3) The lack of a national organization for expressing the will in a national
way of ALL Certified Public Accountants of ALL the states. 49
Then there was a feeling among many members of the profession
outside the eastern area of the United States that the American
Institute was being run by just a few members. 50 It seems significant
that the Institute, in its federal incorporation act, had a governing
body composed of thirty-nine representatives with no more than
six from any one state. The Council was composed of representa-
tives from almost all the states that had C.P.A. laws at that time.
Article II of the constitution of the American Society of Cer-
tified Accountants states:
The object of the society shall be to protect and foster the certificate of
Certified Public Accountants, as granted by the States and political subdivisions
of the United States of America.
Article III states:
The membership of this society shall consist of certified public accountants.
49 "The American Society and the American Institute," The Certified Public Accountant, III (October,
1924), 244.
»/&«*., p. 247.
Public Accounting in the United States-191 3-1928 129
Every member shall be the legal holder of a certified public accountant's certi-
ficate issued by a state or political subdivision of the United States of America. 51
The constitution of the American Society of Certified Public
Accountants goes on to say that the United States would be divided
into districts. Each state would have the right to elect one repre-
sentative for each fifty members or major fraction thereof, and any
state with less than fifty members would elect one representative.
The district representatives would then elect directors annually to
serve on the board of directors, which was the governing body of
the organization.
It was felt by the members of the American Society of Certified
Public Accountants that the problem of winning complete public
recognition and respect was greater than any other problem facing
the public accountancy profession. The aims of the Society, in an
effort to achieve this status, were: 52
(1) to co-operate effectively with the state societies;
(2) to promote the prestige of the state societies;
(3) to protect and foster the state-granted certificates;
(4) to educate the public generally, and businessmen specifically, to under-
stand the importance and advantages of C.P.A. service;
(5) to co-operate financially and other ways with the state societies fighting
adverse legislation;
(6) to stimulate education of all accountants now certified, and those who
are working to earn their certificates.
Soon after the formation of the Society, as early as 1924, there
were attempts to consolidate the two national organizations. This
merger did not come about for several years thereafter and will be
discussed in detail in a later chapter. Both of the national public
accounting organizations continued to operate and in many cases
performed duplicate functions. In fact, many of the leading pro-
fessional public accountants in practice during the tenure of the
51 " Constitution and By-Laws of the American Society of Certfieid Public Accountants," The Certified
Public Accountant, II (August, 1923), 213.
52 Alexander Banks, "Problems Now Confronting the Public Accounting Profession," The Certified
Public Accountant, III (January, 1924), 20.
130 History of Public Accounting
two organizations held membership in both. Individuals who held
these memberships did so in good faith although leaders such as
Robert H. Montgomery did not approve of the two different organi-
zations and worked very diligently for their merger.
Institute Rejects an Amendment
During the annual meeting of the American Institute of Account-
ants in 1925, there was introduced an amendment to that organi-
zation's constitution to restrict membership to Certified Public
Accountants. An earlier attempt to bring about this change had been
defeated by a very small majority. Some of the leading practitioners
felt that membership in the national organization should be re-
stricted to those who had C.P.A. certificates, yet when the amend-
ment was presented for a vote it was overwhelmingly defeated. The
amendment's importance was enhanced rather than diminished by
the practically unanimous nature of the opposition to it; however,
when the amendment to restrict admission was put to a vote, there
were only two who desired to be recorded in favor. 53
The overwhelming action by the members of the Institute can be
partially explained. Some of them were not C.P.A. 's, since one of the
purposes of the organization was to admit those qualified public
accountants who could not meet the requirements of state legisla-
tion. Moreover, the American Society had restricted its membership
to Certified Public Accountants. If the Institute had done the same
thing, the two organizations would have been practically identical.
American Institute of Accountants Board of Examiners
The American Institute of Accountants was seeking to avoid the
charge of being a closed corporation, a trust or any of the other
reprehensible things which are apt to frighten the American mind.
It was the Institute's desire to have on its roll every accountant,
honestly engaged in public practice, who had a sufficient knowledge
of accounting to justify him in offering his services to the public
without jeopardy to the public interest. 54
^Editorial, "The Institute Rejects an Amendment," The Journal of Accountancy, XL (November,
1925), 355.
^"Growth of Accountancy," The Accountant, LVII (August, 1917), 135.
Public Accounting in the United States— 1913-1928 131
Up to this time each of the states that had C.P.A. laws in force
prepared its own examination. This led to varying requirements and
standards of admittance to the profession. Some of the states' exam-
inations were considered to be exclusive in nature.
A board of examiners of the Institute was appointed September
21, 1916, and organized by the election of Arthur W. Teele as chair-
man. They met again on November 10, 1916, to formulate rules and
regulations for the conduct of examinations. 55
There was a provision in the rules and regulations that an appli-
cant possessing such qualifications as the board might from time to
time prescribe might, at the discretion of the board and upon the
request of the applicant, be subjected to oral instead of written ex-
aminations in one or more subjects. The oral examinations were
given to satisfy those members of the profession who felt that some
examination should be given to all members regardless of how long
they had been practicing accountancy. This practice was adopted
because of the difficulty of arriving at a satisfactory definition of
what constituted the practice of public accountancy. 56
It was decided to offer the first examination on June 14, 1917,
under the auspices of the American Institute of Accountants. The
following states used this first examination given by the Institute:
California, Colorado, Florida, Michigan, Missouri, Nebraska, New
Hampshire, New Jersey, and Tennessee. A copy of this examination
can be found in the July, 1917, Journal of Accountancy. 51
In all probability, the number of applicants eligible for oral ex-
amination was greater at this first examination than at any subse-
quent time. Some members of the American Institute of Accountants
felt that a considerable number of men in different parts of the
country, whose qualifications for membership were satisfactory, had,
for one reason or another, been prevented from becoming C.P.A.'s.
Lacking this qualification, these men were not eligible for member-
ship in the American Association after the change in the bylaws
which became effective in 1913.
It was felt by the members of the American Institute of Account-
^"The Institute of Accountants in the United States of America," The Accountant, LV (November,
1916), 445.
""Accountancy in the States," The Accountant, LVI (January, 1917), 81.
^Letter from Robert L. Kane, Educational Director of the American Institute of Accountants, to
James D. Edwards, dated June 2, 1952.
132 History of Public Accounting
ants that many of the questions on the state examinations had been
ultra-technical and that a man who had been in practice for a num-
ber of years could not answer them, while one fresh from an ac-
counting school could. Also, many of the state examinations were
designed to exclude rather than to admit, and questions had been
formulated which, in many cases, were susceptible to more than one
answer. The applicant who gave the answer selected by the exam-
iners would pass, whereas the applicant giving another answer
equally accurate would receive no credit whatever. 58
In 1917 the newly-formed American Institute of Accountants,
through its Board of Examiners, made every attempt to overcome
these obstacles. It seemed sufficient that the board was set up so that
it would not include among its members any representative from an
accountancy school. The first examination was given in the fields of
accounting theory and practice, auditing, and commercial law. 59
American Institute of Accountants Library
George O. May, one of the partners of Price, Waterhouse and
Company, discussed with members of the American Institute of
Accountants, in 1917, the question of founding a library and bureau
of information, to which members might submit questions confront-
ing them without disclosure of names on either side; they could thus
receive opinions from other members who were qualified to answer
them, and other general information on accountancy. May offered
a subscription in the name of his firm for the purpose of establish-
ing such a library. This recommendation, backed by the subscrip-
tion, resulted in an endowment of over $200,000 for the establish-
ment of a library and research staff by the Institute. 60
American Institute of Accountants Bureau of Research
The American Institute of Accountants proceeded to carry out
the previously mentioned provisions as set forth in its federal char-
^Editorial, "Institute Examinations," The Journal of Accountancy, XXIII (February, 1,917), 133.
59 Editorial, "American Institute of Accountants Board of Examiners," The Journal of Accountancy,
XXIV (July, 1917), 20.
^Sanders W. Davies, "Genesis, Growth and Aims of the Institute," The Journal of Accountancy,
XLII (August, 1926), 108.
Public Accounting in the United States— 1913-1928 133
ter. At the annual meeting of the Council of the American Institute
held in April, 1926, the Committee on Endowment recommended
the establishment of a bureau of research, to investigate various
areas in accounting and make this information available to the pro-
fession. It was to function along with the library and department
of information which had previously been established. The report of
the committee was unanimously approved by the Council, and the
bureau was established shortly thereafter. 61
The bureau served a very useful purpose for the profession of
accountancy for some twenty-five years. It no longer exists, however.
The issuance of an important Federal Reserve pamphlet a short
time thereafter was the first accomplishment. This booklet was the
first of many publications to come from the Institute's Bureau of
Research.
Practice before the Board of Tax Appeals
The Board of Tax Appeals was established by the 1924 Revenue
Act of the Congress of the United States. The most immediate
problem facing the board after it was organized in the latter part of
1924 was to establish who was qualified to practice before the board.
There had been some representatives appearing before it who were
not qualified to represent the taxpayers.
The Board of Tax Appeals in its first ruling included a provision
that practice before the board would be restricted to attorneys and
certified public accountants. The rule provided for admission to
practice of the following:
1. Attorneys-at-law who have been admitted to practice before the courts of
the States, territories, or District of Columbia, in which they maintain offices,
and who are lawfully engaged in the active practice of their profession.
2. Certified Public Accountants who have duly qualified to practice as certi-
fied public accountants in their own names, under the laws and regulations of
the states, territories, or District of Columbia, in which they maintain offices,
and who are lawfully engaged in active practice as certified public account-
ants. 62
^Editorial, "A Bureau of Research," The Journal of Accountancy, XLI (May, 1926), 354.
"^Editorial, "Board of Tax Appeals," The Journal of Accountancy, XXXVIII (November, 1924), 206.
134 History of Public Accounting
The purpose of the Board of Tax Appeals rule was to bar unde-
sirable and poorly qualified representatives of taxpayers (such as the
self-styled "tax experts") from appearing before the board on behalf
of their clients.
Federal Reserve Board Requests a Pamphlet
The promulgation by the Federal Reserve Board of a ruling call-
ing for public accountants' certification of statements presented in
support of application for discount of commercial paper, brought
into prominence a question which had been frequently discussed at
conventions of the American Association of Public Accountants.
This ruling added even more impetus to the growth of the profes-
sion and engaged the attention of its leaders in the national scope of
the work of the public accountant. 63
The American Institute of Accountants' committee on federal
legislation was instructed to cooperate with the Federal Trade Com-
mission. The committee consisted of the president, W. Sanders
Davies, Harvey S. Chase, George O. May, and Robert H. Montgom-
ery. This committee was successful in persuading the Commission
to dispense with the idea of a uniform accounting system and be
satisfied with a more specific statement, "Approved Methods for the
Preparation of Balance Sheet Statements."
Other members of the American Institute of Accountants were
consulted during the preparation of the committee's report, and the
council of the Institute unanimously approved the audit program
which was recommended. The Federal Reserve Board then had the
report published in the Federal Reserve Bulletin in 1917. 64
This publication, Approved Methods for the Preparation of
Balance Sheet Statements, was a statement of what the Board be-
lieved a balance sheet audit should entail. Subsequently, after the
Federal Reserve Board had adopted it as semi-official, the document
became the standard authority on minimum requirements in bal-
ance sheet audits. 65 The demand for the pamphlet was so great that
it went through several printings.
^Editorial, "National Aspects of Public Accountancy," The Journal of Accountancy, XIX (January,
1914), 46.
•^Editorial, "How the Text Was Published," The Journal of Accountancy, XLVII (May, 1929), 358.
^Editorial, "Significance of an Accountants' Certificate," The Journal of Accountancy, XLI (January,
1926), 33.
Public Accounting in the United States— 1913-1928 135
Education for Accountancy
The importance of education in the minds of accountants is con-
firmed by the stated objectives of the American Institute of Account-
ants, as found in its charter:
(a) To promote education in the science of accounts, and in practical ap-
plication of that science, throughout the United States of America and its
territories and possessions
(b) To maintain a library of works treating upon the subject of accountancy
and upon related subjects and to encourage the production of such works
(c) To publish books, pamphlets, and periodicals for the increase of infor-
mation and education in the science of accounts. 66
The American Society of Certified Public Accountants also wrote
into its constitution, as one of its objectives, the following: " (6) to
stimulate education of all accountants now certified, and those who
are working to earn their certificates." 67
The American Society of Certified Public Accountants then ac-
knowledged the need for instruction of candidates preparing for the
examination and also for a continuing educational program for the
certified man.
Universities and technical schools, recognizing this need for train-
ing, and possibly foreseeing the part which the accountant would be
called upon to play in the modern industrial world, readjusted and
expanded their curricula to provide intensive training for the stu-
dent of accountancy. By 1920 most of the major universities and col-
leges not only had accounting courses in their curricula but were
offering degrees in business administration with a major in account-
ing. 68 The increase from fifty-two such colleges in 1910 to one hun-
dred and sixteen in 1916 is an indication of the expansion of educa-
tional opportunities for accounting students. It is noteworthy, more-
over, that forty-eight of these institutions were offering courses which
pointed specifically toward securing the C.P.A. certificate. 69
^Editorial, "For Federal Incorporation," The Journal of Accountancy, XXXIII (January, 1922), 39.
67 Alexander Banks, "Problems Now Confronting the Public Accounting Profession," The Certified
Public Accountant, III (January, 1924), 2.
^Editorial, "Growth of Accountancy," The Accountant, LVII (August, 1917), 134.
^C E. Allen, "The Growth of Accounting Instruction Since 1900," The Accounting Review, II (June,
1927). 160.
136 History of Public Accounting
Further indication of the significance of university training in ac-
counting is the formation of a national organization of instructors.
In Washington, D.C., during December, 1915, a group of accounting
instructors decided on this move, but it was not until the next year,
on December 28, 1916, at Columbus, Ohio, that the organization
came into existence as the American Association of University In-
structors in Accounting. The purpose of the Association as stated in
its constitution was: "To advance the cause of Instruction in Ac-
counting." 70
Technical education was also being carried on by correspondence
with some success. As an example, the LaSalle Extension University
of Chicago had over ten thousand accounting students in 1917.
Another of the early accounting correspondence schools was the
Walton School of Commerce. Students included not only clerks,
bookkeepers, and junior accountants, but also senior accountants,
auditors, and comptrollers of large corporations as well as public
accountants who understood the value of continuous training in
their profession. 71
Expansion of C.P.A. Firms
Along with the increasing emphasis on educational standards of
public accountants, more and more public accounting firms were
being established. Most of these practiced on a local basis; however,
many developed regional practices and most of them attained repu-
tations for such professional competence as to rate their work equal
with that of the national firms. In many areas of the United States
audit reports of certain local and regional firms have always been
and continue to be just as acceptable to bankers, investors and
creditors as those of the national firms. While most of the distin-
guished local firms are located in the larger cities such as New York,
Chicago, San Francisco, Houston, St. Louis, Denver, and Omaha,
occasionally an individual or a firm in a community of less than
100,000 population makes such an outstanding contribution to the
profession as to be recognized nationally or even internationally.
70 Editorial, "American Association of University Instructors in Accounting," The Journal of Ac-
countancy, XXV (February, 1918), 155.
"Arthur W. Chase, "University Education of Accounting Students in the United States," The Ac-
countant, LVII (September, 1917), 179.
Public Accounting in the United States— 1913-1928 137
In 1959 there were about sixty-five hundred local certified public
accounting firms in the United States. The number of public ac-
counting firms is in distinct contrast to the approximately one
hundred firms in 1900 and the one thousand in 1915.
In the aggregate these local public accounting firms handle a
larger volume of work than do the dozen or so national ones. These
local practitioners are the business advisors to the small businessmen
on matters of taxation and other government regulations. These
local and regional firms render real assistance to their clients in
systems work and budgeting. Their clients generally are the small
and medium-sized businesses, but some obtain audit engagements
with larger corporations.
The tendency today, however, is for national public accounting
firms to grow larger by absorbing the practices of local firms. In the
process the national firms have acquired a major portion of the
audits of large corporations. Despite this trend toward national
public accounting firms, many local firms have grown stronger and
have resisted offers of national firms to purchase their practices. The
local certified public accountants remain the mainstay of the account-
ing profession in the United States.
While the number of local and regional C.P.A. firms multiplied
rapidly, national public accounting firms continued to increase the
number of branch offices. The firm of Lybrand, Ross Brothers, and
Montgomery, which had been formed in 1898, opened offices in
widely scattered sections of the country. In 1919 Lybrand opened its
Washington, D.C., office in order to have closer contact with the
federal government. The two offices opened the next year were in
widely separated sections of the country: Detroit and Seattle. In
1923, offices were opened in Cleveland and Cincinnati and, in 1924,
in San Francisco, Los Angeles, and Baltimore. 72
Price, Waterhouse and Company, organized in 1890, opened
offices from one end of the country to the other during the period
1913 to 1928. That in Milwaukee was opened in 1914 and the De-
troit one the next year. After four years, the Cleveland office was
opened in 1919; then came Providence in 1920. In 1921 the Wash-
ington, D. C, office was opened and also the Portland, Oregon,
72 William N. Lybrand, T. Edward Ross, Adam A. Ross, and Robert H. Montgomery, Fiftieth Anni-
versary (privately printed, 1948), p. 24.
138 History of Public Accounting
office. An eastern office, in Buffalo, and a southern one, in Atlanta,
were opened in 1928. 73
The Milwaukee office of Arthur Andersen and Company was
opened in 1915 in order that the firm might better serve its clients
in that area. Then came the opening of the New York office and the
Washington, D. C, office in 1921. After the lapse of two years the
Kansas City branch was started in 1923. The firm spread to the west
coast by opening offices in Los Angeles in 1926, and in San Fran-
cisco in 1928. 74
The firm of Ernst and Ernst started in 1903. Offices for this firm
were opened in St. Louis in 1913. In 1915 Dallas and Pittsburgh
offices were opened, and in 1916 one in Detroit. The next year
offices were opened in Boston and Houston. Two middle western
ones were opened in 1918 in Minneapolis and Toledo, as well as an
eastern one in Philadelphia. Then, in 1919, offices were opened in
Buffalo, Washington, Kansas City, Indianapolis, Fort Worth, and
Atlanta. The greatest expansion occurred in 1920, with branches
set up in such cities as Providence, Canton, St. Paul, Richmond,
Grand Rapids, Denver, New Orleans, Columbus, and Kalamazoo.
Then came offices in Youngstown, Baltimore, Erie, and Dayton in
1921; Akron, San Antonio, and Rochester in 1922; Milwaukee, San
Francisco, and Los Angeles in 1923; Memphis in 1924; Miami in
1925; Winston-Salem in 1926; and Seattle in 1928. 75
Reasons for Growth of National Firms' Branch Offices
The public accounting practice of many an individual calls for
travel from one state to another during the year. Thus the certified
public accountant is brought under the jurisdiction of state govern-
ments other than that which granted him his certificate. Many firms
are engaged in practice in several states, and they are, as indicated
in the previous section and in the last chapter, compelled to select
one state as their principal headquarters and to conform to the re-
quirements of that state. 76
73 Letter from C W. DeMond, partner in Price, Waterhouse and Company, to James D. Edwards,
dated May 6, 1952.
74 Charles W. Jones, "A Chronological Outline of the Development of the Firm," The Arthur Ander-
sen Chronicle, IV (December, 1943), 14.
75 Letter from J. A. Lindquist, partner in Ernst and Ernst, to James D. Edwards, dated May 21, 19S2.
76 Editorial, "National Aspects of Public Accountancy," The Journal of Accountancy, XIX (January,
1914), 49.
Public Accounting in the United States— 1913-1928 139
Many objections are raised to the establishment of branch offices
of accounting firms, the most important of which has been the criti-
cism of the local practitioner who feels that the national firms are
invading his territory by establishing branch offices.
In all professions the work was originally almost wholly an indi-
vidual matter. The lawyer, for instance, had his offices in which he
met his clients and personally served their needs. In the beginning
the accountant, too, worked in a somewhat similar fashion.
The corresponding relationships thus established were ideal in
many respects, and might have continued undiminished but for the
growth of the volume of business and the variety and extent of en-
gagements. Accountancy has been and is more closely connected
with this development of business than perhaps any other profes-
sion. As a business service accountancy must conform in its develop-
ment to the necessities imposed upon it by the changing structure
of business. 77
Neither the financial nor the physical operations of business are
completely local any longer, and it is this change in conditions
which makes the branch office system in public accounting necessary.
As incorporated business organizations became larger and began to-
open branch offices, so did the accounting firms. The major reason
for the opening of branch offices by accounting firms was to serve
their clients more efficiently. If a C. P. A. firm did the auditing for the
home office, it usually was the policy to have the same firm audit
the branch offices. Many auditors originally depended on a cor-
respondent firm to handle the audit of far-flung offices and plants,
but it was much more satisfactory to have an office of one's own firm
in that area to ensure better control over the audits.
Branch offices of accounting firms are usually staffed to furnish the
same services as the home office, yet they maintain a national repu-
tation because the home office has the responsibility of reviewing the
work performed. 78
The capital that big business needs has always been obtained in
large measure from commercial banks and investment bankers in
the financial centers of the country rather than locally. Almost uni-
versally the audit certificate of a certified public accountant is re-
"Editorial, "Branch Office Ethics," The Journal of Accountancy, XXVIII (September, 1919), 212.
78 T. A. Ross, "Growth and Effect of Branch Offices," The Journal of Accountancy, XXX (October,
1920), 2S6.
140 History of Public Accounting
quired in connection with the transaction. It is generally agreed
that the bankers' requirement of the certificate of an accountant is
in the interest of sound business in having a review of the records
made by an independent third party.
The acceptance of certificates issued by branch offices of a public
accounting firm is a result of the confidence in standards and
methods which has been inspired by work well done locally. At bot-
tom, the firm with a branch office organization and the firm whose
practice is confined to a restricted territory are in the same position,
in that the acceptability of their certificates depends on the reputa-
tion enjoyed in the locality where the certificate is to be used. Gen-
erally, the national firm's certificate will have a much wider range
of acceptance than the certificate issued by a local C.P.A. because of
the national firms being known in industrial and financial circles.
Reporting Standards for Certified Statements
The pamphlet Approved Methods for the Preparation of Balance
Sheet Statements , issued in 1918, detailed what the Federal Reserve
Board considered to be the minimum auditing procedures. The Fed-
eral Reserve Board was the first governmental agency to approve
what they considered minimum standards.
As early as 1919, The Journal of Accountancy frequently urged
the placing upon the shoulders of the accountant of full responsibil-
ity for his work. The lack of court decisions in the United States
dealing with the accountant's responsibility resulted in a wide differ-
ence of opinion as to the liability involved.
For years the general opinion seemed to favor the theory advanced
in several English cases (London and General Bank, Ltd., The
Leeds Estate, Building and Investment Company, and the Kingston
Cotton Mill Company, presented in a previous chapter) to the effect
that the accountant must exercise reasonable care in the preparation
and certification of reports. It is the duty of the auditor to inquire
into the substantial accuracy of the accounting reports. But the
point is established in America only when some accountant is
charged with neglect of his professional obligations and damages are
assessed. 79 Auditing standards are established by the profession, but
79 Editorial, "Holding the Accountant Responsible," The Journal of Accountancy, XXVIII (July,
1919), 39.
Public Accounting in the United States— 1913-1928 141
court decisions affect what the profession considers minimum audit-
ing standards. This will be shown here and also in other cases in a
later chapter.
Auditor's Responsibility and the Law
The responsibility of the auditor for the maintenance of mini-
mum auditing standards and procedures has been defined in several
American court decisions. The most prominent of these was handed
down by Judge Cardozo in Ultramar es Corporation v. Touche et al.
(255 N.Y. 170, 174 N.E. 441 [1931].) This case is discussed in some
detail here to convey its background as well as the final decision.
In January, 1924, the firm of Touche, Niven and Company, pub-
lic accountants, was engaged by Fred Stern and Company, Incor-
porated, to prepare and certify a balance sheet for the Company as
of December 31, 1923. This same firm of accountants had prepared
the statements of this company during the previous three years.
When the audit was completed in February, 1924, the balance
sheet was made up. The balance sheet stated that the assets were
$2,550,671.88 and that the liabilities were $1,479,956.62, thus show-
ing a net worth of $1,070,715.26. Attached to the balance sheet was
the following auditor's certificate:
Touche, Niven & Co.
Public Accountants
Eighty Maiden Lane
New York
February 26, 1924
Certificate of Auditors
We have examined the accounts of Fred Stern and Company, Inc., for the
year ending December 31, 1923, and hereby certify that the annexed balance
sheet is in accordance therewith and with the information and explanations
given us. We further certify that, subject to provision for federal taxes on in-
come, the said statement, in our opinion, presents a true and correct view of
the financial condition of Fred Stern and Company, Inc., as of December 31,
1923.
Touche, Niven and Company
Public Accountants 80
8°Ultramares Corp. v. Touche, 255 N.Y. 170, 174 N.E. 441, 442 (1931).
142 History of Public Accounting
It was known to the accountants that the company used the state-
ments to finance their operations, which involved extensive borrow-
ing of large sums from banks. The auditors also knew that the state-
ments given Fred Stern and Company would be exhibited by them
to bankers, creditors, and stockholders, according to the needs of the
occasion, as the basis of financial dealings. When the balance sheet
was made up, the accountants supplied the Stern Company with
thirty-two copies certified with serial numbers as counterpart orig-
inals.
The president of the Stern Company later requested loans from
the Ultramares Company, which had not previously advanced
money to Stern. He submitted with his request one of the state-
ments certified by Touche, Niven and Company. All the loans that
were subsequently made by the Ultramares Corporation were, by
agreement, to be secured by assignment of accounts receivable. The
conditions of the agreement were fulfilled with respect to the earliest
loans, but later the lending corporation did not insist upon the
prompt assignment of the accounts and in particular failed to re-
quire the assignment of accounts in support of the loans which were
not paid.
Then Fred Stern and Company was declared bankrupt on Janu-
ary 2, 1925. In November, 1926, the Ultramares Corporation
brought suit against the auditors, Touche, Niven and Company, to
recover the amounts which had not been repaid. The plaintiff stated
that had the audit been made carefully it would have been shown
that Fred Stern and Company was insolvent in 1923 instead of
having a surplus, but the plaintiff relied on the statements of the
auditor and granted loans. The action was first brought against the
auditors for negligence, and later a second cause of action alleging
fraud was added.
In the first trial the judge, at the close of the testimony, directed a
verdict for the defendant on the fraud charge, but left it to the jury
to decide whether the defendants had been negligent. The jury
rendered a verdict against the accountants and made an award of
$187,576.32, which Judge Walsh set aside on the ground that negli-
gence is not actionable unless there is a breach of duty by the
defendant (in this case Touche, Niven and Company) to the plain-
tiff (Ultramares Corporation).
The case was then appealed to the Appellate Division of the
Public Accounting in the United States— 1913-1928 143
Supreme Court of New York, which affirmed the lower court's dis-
missal of the complaint of fraud, but reserved the decision of dismis-
sing the complaint of negligence. The verdict of the jury in favor
of the plantiff granted a judgment for the sum of $203,058.97. Again
the case was appealed, this time by both sides, the accountants on
the second count and the company on the fraud case. The case then
went to the Court of Appeals of the State of New York. 81
The plaintiff maintained that the certificate of the auditor, pre-
viously given in this chapter, was erroneous in two respects. The
first was the asserted correspondence between the accounts and the
balance sheet, purporting to be made as a matter of knowledge of
the auditors. The second was the auditors' certification that the
conditions reflected in the balance sheet presented a true and cor-
rect picture of the resources of the business, stated as a matter of
opinion. If correspondence, however, be assumed, a closer examina-
tion of supporting invoices and records, or a fuller inquiry directed
to the persons appearing on the books as creditors or debtors, would
have exhibited the truth. In fact, accounts receivable had been
placed on the books and substantiated by invoices which actually
did not exist. It was maintained that proper scrutiny would have
revealed this fact to the auditors.
The following are excerpts from the decision of Judge Cardozo
of the Court of Appeals:
The defendants owed to their employer a duty imposed by law to make their
certificates without fraud, and a duty growing out of contract to make it with
the care and caution proper to their calling. Fraud included the pretense of
knowledge when knowledge there is none. To creditors and investors to whom
the employer exhibited the certificate, the defendants owed a like duty to make
it without fraud, since there was notice in the circumstances of its making that
the employer did not intend to keep it to himself. A different question develops
when we ask whether they owed a duty to these to make it without negligence.
If liability for negligence exists, a thoughtless slip or blunder, the failure to
detect a theft or forgery beneath the cover of deceptive entries, may expose ac-
countants to a liability in an indeterminate amount for an indeterminate time
or to an indeterminate class. The hazards of a business conducted on these
terms are so extreme as to enkindle doubt whether a flaw may not exist in the
implication of a duty that exposes to these consequences. We put aside for, the
moment any statement in the certificate which involves the representation of a
*lbid., p. 441.
144 History of Public Accounting
fact as true to the knowledge of the auditors. If such a statement was made,
whether believed to be true or not, the defendants are liable for deceit in the
event that it was false. The plaintiff does not need the invention of novel doc-
trine to help it out in such conditions. . . .
Our holding does not emancipate accountants from the consequence of fraud.
It does not relieve them if their audit has been so negligent as to justify a
finding that they had no genuine belief in its adequacy, for this again is fraud.
It does no more than say that if less than this is proved, if there has been
neither reckless misstatement nor insincere profession of an opinion, but only
honest blunder, the ensuing liability for negligence is one that is bounded by
the contract, and is to be enforced between the parties by whom the contract
has been made. We doubt whether the average business man receiving a certi-
ficate without paying for it and receiving it merely as one among a multitude
of possible investors, would look for anything more. . . .
The correspondence to be of any moment may not unreasonably be held to
signify a correspondence between the statement and the books of original entry,
the books taken as a whole. If that is what the certificate means, a jury could
find that the correspondence did not exist and that the defendants signed the
certificates without knowing it to exist and even without reasonable grounds
for belief in its existence. . . .
The defendant's attempt to excuse the omission of an inspection of the in-
voices proved to be fictitious by invoking a practice known as that of testing
and sampling. A random choice of accounts is made from the total number on
the books, and these, if found to be regular when inspected and investigated,
are taken as a fair indication of the quality of the mass. The defendants say
that about 200 invoices were examined in accordance with this practice, but
they do not assert that any of the seventeen invoices supporting the fictitious
sales were among the number so selected. Verification by test and sample was
very likely a sufficient audit as to accounts regularly entered upon the books
in the usual course of business. It was plainly insufficient, however, as to ac-
counts not entered upon the books where inspection of the invoices was neces-
sary, not as a check upon accounts fair upon their face, but in order to ascer-
tain whether there were any accounts at all. If the only invoices inspected were
invoices unrelated to the interpolated entry, the result was to certify a cor-
respondence between the books and the balance sheet without any effort by
the auditor, as to $706,000 of accounts, to ascertain whether the certified agree-
ment was in accordance with the truth. How far books of account fair upon
their face are to be probed by Accountants in an effort to ascertain whether
the transactions back of them are in accordance with the entries, involves to
some extent the exercise of judgment and direction. . . .
We conclude, to sum up the situation, that in certifying to the correspond-
ence between balance sheet and accounts the defendants made a statement as
true to their own knowledge, when they had, as a jury might find, no knowl-
edge on the subject. If that is so, they may also be found to have acted without
Public Accounting in the United States— 1913-1928 145
information leading to a sincere or genuine belief when they certified to an
opinion that the balance sheet faithfully reflected the condition of the business.
Whatever wrong was committed by the defendants was not their personal
act or omission, but that of their subordinates. This does not relieve them how-
ever, of liability to answer in damages for the consequences of the wrong, if
wrong there shall be found to be. . . . 82
After this judge had written such a descriptive decision on the re-
sponsibility of the public accountant, he ordered a new trial in the
case. The case was not taken to court again, but there was a settle-
ment out of court sometime later.
Judge Cardozo's decision was the most prominent of all American
court cases on the responsibilities of the auditor and his responsibil-
ity to third parties. It would appear that such a decision would have
its inevitable influence on the practitioners in this country. The pro-
fession would then be put on guard in the performance of the duties
of auditors.
Judge Cardozo actually confirmed the common law concept, cur-
rent in the United States and England, that an auditor should not
be held liable to third parties for negligence. The injured party
could not hold the accountant responsible for errors in judgment
except when fraud was present. In this case the suit brought on the
grounds of fraud was settled out of court; no public record was made
of the settlement.
State Street Trust Co. v. Ernst was substantially analogous to the
Ultramares case. 83 Prior to these decisions it had been generally
believed that the auditor owed no duty whatsoever to persons who
were not his clients. Since there was no contract with third parties,
it was queried as to how there could possibly be any responsibility
to them. In other words, accountants at that time claimed that even
if they were negligent the only person who had a right to complain
was the client.
However, these two decisions held that:
a. The client may recover from an accountant where the accountant had been
negligent;
**lbid„ pp. 444-450.
^State Street Trust Co. v. Alwin C. Ernst, 278 N.Y. 104 (1938).
146 History of Public Accounting
b. Third parties (investors and creditors) cannot recover from an accountant
where he has been merely negligent;
c. Third parties (investors and creditors) may recover from an accountant
where fraud can be proved;
d. Gross negligence on the part of accountants is sufficient evidence from
which a jury may infer fraud. 84
The auditor's responsibility to his client has been ruled on in
several cases, the most notable being Craig v. Any on, 212 App. Div.
N.Y. 55 (1925) affirmed 242 N.Y. 569, 85 and National Surety v.
Lybrand, 9 N.Y. 52d 554 App. Div. 226, 233. 86
In Craig v. Any on the auditors failed to discover, over a period of
five years, defalcations exceeding a million dollars. The trial court
held the auditors liable and assessed damages for the amount of the
plaintiff's loss. The amount of damages was reduced on appeal to
$2,000, the fee paid to the defendant auditors for their services. The
nominal amount of damages was due to the defense plea that plain-
tiff clients had been contributorily negligent in the supervision— or
lack thereof— over their own malfeasant employee. Thus it was felt
that if an auditor could show that his client had himself been negli-
gent, he had a defense against any suit for negligence. 87
But this idea that contributory negligence would be an adequate
defense was shattered by the National Surety v. Lybrand decision in
1939. This case was another of those that established the liability of
an auditor for his negligence in performing an audit. As in the Craig
case, a trusted employee was involved. The employee's theft covered
a period of nine years without detection. The cashier had managed
to hide his embezzlements from the three accounting firms by know-
ing when the audits were to be performed. All three accounting
firms were sued by the plaintiff's surety company. After the first
decision was appealed it was held that a prima facie case for liability
had been made out. The decision included the definite and import-
s^Boris Kostelanetz, "Auditors' Responsibilities and the Law," The New York Certified Public Ac-
countant, XIX (February, 1949), 94.
^William R. Craig v. James T. Anyon, 242 N.Y. 569 (1926).
^National Surety Corp. v. Lybrand, 256 App. Div. 226, 9 N.Y. 52d 554 (1939).
8 TBoris Kostelanetz, "Auditors' Responsibilities and the Law," The New York Certified Public Ac-
countant, XIX (February, 1949), 93.
Public Accounting in the United States— 1913-1928 147
ant statement that "it is undisputed that cash in bank can be verified
absolutely"; therefore, the "lapping" and "kiting" system used by the
cashier should have been detected by the auditors. 88 Further, the
decision implied that the only kind of contributory negligence
which would be a defense is that which amounts to an interference
with the auditor's conduct.
Later when the Securities Acts were passed, statutes were enacted
to establish the accountant's liability to third parties. These statutes
will be discussed in the following chapter.
SUMMARY
By the end of this period, 1913-1928, the public accounting pro-
fession had attained national prominence. The American Institute
of Accountants was now well established; in 1917 it began to offer
two examinations yearly for candidates who desired admission to the
Institute. There was also another national organization representing
the liberal element of the C.P.A. movement, the American Society
of Certified Public Accountants. Many practitioners held member-
ship in both groups.
The public accounting profession grew rapidly under the in-
fluence of the income tax law of 1913 and the excess profits tax of
1917. These laws had established a new phase of operations for the
public accountant. In the preparation of the income tax returns the
accountant was able to furnish his client other beneficial services.
Then, too, many companies engaged auditors on a regular basis for
the first time. These developments were reflected in the expansion
of national and local public accounting firms.
By 1924 all of the states and territories had enacted C.P.A. legis-
lation. There was no strict uniformity in the laws of the several
states nor in the examinations given to candidates. The examination
given by the American Institute of Accountants was to be used in
future years to establish uniform examination standards for all
C.P.A.'s.
The Cardozo decision in the Touche, Niven and Company case
was to have an effect on the profession. The status of the profession
and the fixing of their responsibilities in auditing engagements was
to be reflected in the Securities Act of the federal government.
™Ibid., p. 93.
CHAPTER VII
Public Accounting in the United States, 1928-1949
In this period, 1928 to 1951, the public accounting profession at-
tained many of the goals it had been seeking for several decades.
Now that businesses recognized the value of the accountant and con-
ferred with him regularly, his services were sought not only for
auditing and tax services but also for his wide experience and
knowledge as a business consultant.
These years mark the advent of a major governmental agency
having some influence on the establishment of accepted accounting
principles, in some cases as a result of the enactment of laws which
have continued to have an effect upon the profession. The signifi-
cant movements in legislative influences will be discussed in this
chapter. Also, the court decisions of the 1930's are here studied
for their influence upon the development of the profession.
All of the events discussed in this chapter have not yet had their
full impact on the profession, but influences that are apparent are
discussed as completely as possible. The most recent of these is the
conflict between the accounting and the legal professions during
the period from 1945 to 1949.
Influence of the Depression
Despite availability of the Federal Reserve Board's and the
American Institute of Accountants' previously mentioned bulletins,
businessmen, bankers, and accountants may not have given the
proper emphasis to the auditing standards set forth therein. One of
the effects of the depression was greater reliance upon accountancy
on the part of businessmen. Legal restrictions placed on business in
the 1930's had the same result. The defalcations which unfortunately
resulted emphasized the importance of auditing in the case of those
companies which were not of sufficient magnitude to justify the
maintenance of an adequate system of internal check. There were
Public Accounting in the United States— 1928-1949 149
also incidents that demonstrated the importance of external audits
in the case of companies with more elaborate accounting systems.
Companies whose size and importance had seemed to place them
beyond the need of auditing by outside accountants now began to
consult them. Due to the magnitude of the depression and the com-
plications of business, accounting firms of all sizes experienced a
permanent growth in their work. 1
Reporting Standards for Certified Statements
Revised Auditing Pamphlet
From a very early date, the organized profession aggressively
championed sound accounting principles and full disclosure of
material facts. This attitude was reflected in the cooperation given
the Federal Trade Commission in an earlier issue of the pamphlet
entitled "Approved Methods for the Preparation of Balance Sheet
Statements." This pamphlet was revised under the auspices of the
Federal Reserve Board in 1929. It was issued under the title "Veri-
fication of Financial Statements," with the hope that something
could be done to encourage the adoption of proper precautions
by preparing and distributing a set of instructions which would
serve as a guide to accountants, bankers, credit men, and the busi-
ness public. Such a prescription was not intended to be complete or
restrictive, but it purported to show the level below which the
accountants could not go and still certify the validity of the ac-
counts. 2
Effect of the New York Securities Exchange Requirements
The Committee on Business Conduct of the New York Stock
Exchange evolved, in 1921 and 1922, a plan for obtaining periodic
direct statements of the financial condition of each stockbroker or
stockbrokerage house. The requirement sought to get a statement
of financial condition direct from each member. The request for a
statement was in the form of a questionnaire; it could be made at
George 0. May, "Influence of the Depression on the Practice of Accountancy," The Journal of Ac-
countancy, LIV (November, 1932), 336.
2 Victor H. Stempf, "The Securities and Exchange Commission and the Accountant," The New York
Certified Public Accountant, VIII (April, 1938), 12.
150 History of Public Accounting
any time by the committee, and usually was planned to come as a
surprise. The questionnaire called for an audit of the books coin-
cident with the completion of the questionnaire; the audit was to
be made in conformity with the regulations prescribed by the
Committee on Business Conduct. It was also stipulated that the
firm's name must not appear on the questionnaire; instead, by
using a system of key numbers, the confidential nature of the
answer was maintained. The answer to the questionnaire was to
be accompanied by a certificate signed by each member of the
firm and by those who conducted the audit— whether the internal
auditors of the company or a certified public accountant. The
certificate stated that the questionnaire was prepared after an audit
had been prescribed by the Committee on Business Conduct and
that the answers were correct in every detail. 3
The questionnaire that was requested of these firms in the early
twenties was the forerunner of the request for similar statements
from listed companies. Perhaps the Committee felt that only after
the brokerage houses had put their own records in order could the
companies which had their stocks listed on the Exchange be ex-
pected to cooperate.
New York Stock Exchange Statement
For several years before formally audited statements were re-
quired of the companies with stocks listed on the New York Ex-
change, the regular statements of these companies had to be filed
with the Exchange. This practice began in the early 1920's. At first
these statements could be prepared by company accountants, but
when the process of filing them became known to the public ac-
counting profession, the leaders of the Exchange were cautioned
against such a policy of filing uncertified statements. The only re-
sult of these protests was that the Exchange then asked for quarterly
financial statements to be sent to them. 4
Tremendous losses were suffered from the fall in stock prices in
1929. With the realization that proper accounting methods and
independent audits might have prevented some of the financial
3 Harlan Johnson, "New York Stock Exchange Questionnaire," The Journal of Accountancy, XLVIII
(July, 1929), 19.
*"Financial Statements for Stock Exchange," The Journal of Accountancy, XLII (July, 1926), 37.
Public Accounting in the United States— 1928-1949 151
losses that took place, conferences began between the New York
Stock Exchange and the American Institute of Accountants. These
talks continued in 1932 and 1933 and led to two important results.
First came the announcement of the Exchange on January 6, 1933,
that it would require all those requesting permission to list their
stock on the Exchange to have an audit certificate of an independent
certified public accountant. The second step was the adoption by
the Exchange (announced on October 24, 1933), of proposals regard-
ing accounting methods which had been made by an Institute com-
mittee. 5
Accountants were gratified by the announcement made by Rich-
ard Whitney, president of the New York Stock Exchange, explaining
the requirement adopted by the Exchange that listed companies
should have their annual accounts audited by independent public
accountants. This statement was dated January 6, 1933, and read as
follows: 6
Since April, 1932, all corporations applying for the listing of their securities
upon the New York Stock Exchange have been asked to enter in an agreement
to the effect that future annual financial statements published more than three
months after the date of the agreement shall be audited by independent public
accountants, qualified under the laws of some state or country, and shall be
accompanied by a certificate of such accountants showing the scope of the
qualifications, if any, made by them in respect thereto. The committee on
stock list has considered reasons advanced why this procedure should not apply
in particular cases, but has made exceptions only in the case of certain rail-
road companies.
During this period, the New York Stock Exchange has not required that
audited statements be filed with applications for listing, because it was felt
that applicants who had relied upon the former practice of the exchange would
have been subjected to undue delay if the committee had pursued any other
course.
The New York Stock Exchange now announces that its present policy in this
respect will be continued until July 1, 1933, after which date all listing appli-
cations from corporations must contain the certificate of independent public
5 George 0. May, "The Economic and Political Influences in the Development of the Accounting
Profession," in Fifty Years of Service, 1898-1948 (Trenton: New Jersey Society of Certified Public
Accountants, 1948), p. 11.
e Editorial, "Stock Exchange Demands Audits of Listed Companies," The Journal of Accountancy, LV
(February, 1933), 82.
152 History of Public Accounting
accountants, qualified under the laws of some state or country, certifying to the
correctness of the balance-sheet, income statement and surplus statement for
the most recent fiscal year. In general, the audit or audits must cover all sub-
sidiaries, and the scope of the audit must be not less than that indicated in a
pamphlet entitled "Verification of Financial Statements" issued by the Federal
Reserve Board in May, 1929, and obtainable from that board at Washington,
D.C. All applications must include an agreement to the effect that future an-
nual reports published or sent to stockholders will be similarly audited and
accompanied by a similar certificate.
The Committee on Stock List may make exceptions to these requirements in
unusual or extraordinary cases where the enforcement of the requirements
would, in its opinion, be manifestly unwise or impracticable. The committee
has concluded that for the present it will not require audited statements from
railroad companies, except in the case of those railroads whose accounts have
heretofore been currently audited by independent accounts.
Representative houses and banks of issue have been advised of the fore-
going program and have expressed themselves as in accord with the plan out-
lined above, which they believe is sound and consistent with the importance of
affording to the public the most complete and accurate information in regard
to the financial condition of corporations whose securities are publicly dealt in.
The second phase of this program was included in the following
letter from Richard Whitney, president of the New York Stock Ex-
change. Highly important conversations between the Committee on
Stock List of that exchange and accountants had preceded its writ-
ing. The letter was addressed to every corporation whose securities
were listed: 7
The New York Stock Exchange has recently announced its intention of re-
quiring audited statements in connection with the listing applications made
after July 1, 1933. The public response to this announcement indicates clearly
that independent audits are regarded by investors as a useful safeguard.
If, however, such a safeguard is to be really valuable and not illusory, it is
essential that audits should be adequate in scope and that the responsibility
assumed by the auditor should be defined. The exchange is desirous of securing
from companies whose securities are listed, and which now employ independ-
ent auditors, information which will enable it to judge to what extent these
7 Editorial, "Accountants and the New York Stock Exchange," The Journal of Accountancy, LV
(April, 1933), 242.
Public Accounting in the United States— 1928-1949 153
essentials are assured by such audits. In furtherance of this end, we should be
greatly obliged if you will secure from your auditors, upon the completion of the
audit for the year 1932, and furnish to the committee on stock list, for its
use and not for publication, a letter which will contain information on the
following points:
1. Whether the scope of the audit conducted by them is as extensive as
that contemplated in the Federal Reserve Bulletin, Verification of Financial
Statements.
2. Whether all subsidiary companies controlled by your company have been
audited by them. If not, it is desired that the letter should indicate the relative
importance of subsidiaries not audited, as measured by the amount of assets
and earnings of such companies in comparison with the total consolidated
assets and earnings, and should also indicate on what evidence the auditors
have relied in respect of such subsidiaries.
3. Whether all the information essential to an efficient audit has been fur-
nished to them.
4. Whether in their opinion the form of the balance-sheet and of the income,
or profit and loss, account is such as fairly to present the financial position and
the results of operations.
5. Whether the accounts are in their opinion fairly determined on the basis
of consistent application of the system of accounting regularly employed by
the company.
6. Whether such system in this opinion conforms to accepted accounting
practices, and particularly whether it is in any respect inconsistent with
any of the principles set forth in the statement attached hereto.
I shall personally appreciate very much your prompt consideration of this
matter and any cooperation which you may extend to the exchange in regard
thereto. . . .
Probably these New York Stock Exchange rulings were among the
most important forward steps in the field of auditing within recent
years. No one who has been interested in the public accounting pro-
fession can fail to recognize their significance, or the added burden
of responsibilities which they placed on the entire profession, es-
pecially on those practitioners engaged by companies listed on the
Exchange. Upon their success in living up to the new responsibili-
ties that were placed upon them depended in great measure the
future standing of the profession. 8
These accomplishments in the field of auditing have had a stimu-
lating effect not only on those firms that have been the auditors for
the companies listed on the Exchange but also throughout the
154 History of Public Accounting
whole public accounting profession. This was the first time that
the stockholders' annual reports of the companies with stock listed
on the New York Stock Exchange had to be certified by public ac-
countants. Recognition was given the certified public accountant by
the New York Stock Exchange for the first time on a national level
by this requirement. The stipulation laid upon management of
listed companies to obtain this certification was one of the moves
most stimulating to the development of public accounting as a
profession.
Requirement of Independent Audits by Chicago Stock Exchange
Following the action taken by the New York Stock Exchange in
1933, requiring that all applications for listing of corporation secur-
ities be supported by financial statements certified by independent
certified public accountants, the second largest exchange took sim-
ilar action. On March 21 the Chicago Stock Exchange adopted
regulations from which the following excerpts are taken:
Clear and informative financial statements, including a balance-sheet, profit
and loss statement and an analysis of surplus, shall be submitted as part of each
application. Such financial statements shall truly disclose the past operations
and present conditions of the company and shall be certified to the Chicago
Stock Exchange by duly qualified independent public accountants, whose cer-
tificate shall be set forth in full as a part of the application. 9
Securities Act of 1933
While the United States was vacillating between neutrality and
participation in World War I, a new arm of the government was
created, the Federal Trade Commission. One of its functions of in-
terest to accountants was to investigate all corporations in inter-
state commerce except banks and common carriers and require
financial reports from them.
Legislation for the protection of investors was pushed during the
8 Editorial, "Great Responsibility and Great Opportunity," The Journal of Accountancy, LV (February,
1933), 83.
9 Editorial, "Chicago Stock Exchange Requires Certified Statement," The Journal of Accountancy, LV
(May, 1933), 321.
Public Accounting in the United States— 1928-1949 155
depression of the 1930's. When the Securities Act went into effect
after its passage on May 27, 1933, public confidence had been dealt
a staggering blow by the disclosures of defalcations in financial
circles. During the "New Economic Era" a large number of issuers
of securities were found to have grossly misrepresented values and
concealed essential facts and information.
Another factor which might be considered instrumental in the
passage of the Securities Act of 1933 was the growth of the corpora-
tion from a firm in which the ownership was vested in a few in-
dividuals to one collecting funds from all types and classes of in-
vestors. This situation is evidenced by the fact that the number of
shares listed on the New York Stock Exchange was .9 billion in
1929 as compared with 1.3 billions in 1933 and 2.1 billions in
1950. 10 Thus, the corporate form of business operation and the big-
ness of the corporation were having an effect on the public. The
demand for the control over the security issues could be considered
a reflection of the feeling on the part of the public toward bigness.
The first major legislation dealing with such matters was the
Securities Act of 1933. This was defined in its preamble as:
An act to provide full and fair disclosure of the character of securities sold
in interstate and foreign commerce and through the markets, and to prevent
frauds in the sale thereof, and for other purposes. 11
Further, the statute provided for the registration of securities
with the Federal Trade Commission by the filing of registration
statements in regard to such securities sold in interstate markets.
These statements were to reveal all pertinent financial information
as required in Section 7 of the act. 12 Also, the form of the state-
ment had to follow the form that was set forth in Schedule A of the
act. 13 These statements then had to be accompanied by a certificate
of an independent public accountant regarding the financial condi-
tion of the issuing company.
10 New York Stock Exchange Yearbook, 1951 (New York: Department of New York Stock Exchange),
p. 30. J
"Securities Act of 1933, An Act of May 27, 1933, 48 Stat. 74.
»/Mf. f Section 7, p. 78.
™Ibid., Schedule A, Subsection 1, p. 88.
156 History of Public Accounting
The passage of the Securities Act somewhat disturbed the pro-
fession both because of what the public accountants considered an
unreasonable degree of liability imposed upon them, and because
it was feared that the enormous power conferred originally on the
Federal Trade Commission, which included the power to prescribe
forms of financial statements, might not be wisely administered. 14
Liability of Accountant under Act
Section 11a of the Securities Act of 1933 has the following state-
ment pertaining to the liability of the accountant:
In case any part of the registration statement, when such part became
effective, contained an untrue statement of a material fact, or omitted to state
a material fact required to be stated therein not misleading, any person acquir-
ing such security . . . may sue . . . every accountant . . . who has by his con-
sent been named as having . . . certified any part of the registration statement
. . . with respect to the statement . . . which purports to have been . . . certified
by him. 15
It was clear that the accountant might be held liable under the act
without being guilty of either moral culpability or recklessness, if a
court held that (a) facts within his knowledge were presented in
such a way as to mislead; or (b) the tests which he gave were not
sufficiently extensive to justify him in forming a belief; or (c) he
was not justified in forming a belief on the evidence which he
examined without probing deeper. The act stresses the obligation
to state every material fact necessary to make the registration state-
ment not misleading in any way. 16
The officers and directors of the issuing corporation who sign
the registration statement, and the directors upon whom liability
was imposed by the act, might be sued with respect to any part of
the registration statement. The accountant, however, could be sued
uibid., Section 11a, p. 82.
^Andrew Stewart, "Accountancy and Regulatory Bodies in the United States," The Journal of Ac-
countancy, LXV (January, 1938), 36.
16 George 0. May, "The Position of Accountants under the Securities Act," The Journal of Ac-
countancy, LVII (January, 1934), 34.
Public Accounting in the United States— 1928-1949 157
only with respect to the statement, report or valuation which pur-
ports to have been prepared or certified by him. The accountant
was not responsible for any other part of the registration state-
ment. 17
The certified public accountant was pleased at the legal recogni-
tion, but he was worried by the burden of responsibility that was
thrust upon him. The risk assumed by an accountant who signed
the registration statement submitted to the Securities Commission
of the Federal Trade Commission under the 1933 act seemed quite
out of proportion to the possible material benefits that could be
derived from the services rendered. It was not surprising that some
accounting firms accepted the offers to certify registration state-
ments only after having found protection against their liability in
indemnity letters. Actually, only a minor portion of the fees col-
lected by these firms were from the services rendered to corpora-
tions making new security issues. 18
Administration of the Act
Accountants had another reservation, about the administration of
the act. The Federal Trade Commission called for advice and as-
sistance from the American Institute of Accountants in an earnest
desire to make the new law not only protective, but also workable.
A committee was appointed by the president of the Institute to
cooperate with the Federal Trade Commission, and the Commis-
sion, for its part, appointed a subcommittee of advisors on its regu-
lar staff to draft rules and regulations which were to be the subject
of joint consideration by the two committees before promulgation. 19
With its direct provision that the financial statements accompany-
ing a registration statement "shall be certified by an independent
public accountant," this 1933 act had more direct effect on the
public accountant than any previous piece of federal legislation in
that it required certified financial data from companies in inter-
state commerce making original stock issues. 20
"Spencer Gordon, "Accountants and the Securities Act," The Journal of Accountancy, LVI (Decem-
ber, 1933), 439.
"Robert Weidenhammer, "The Accountant and the Securities Act," The Accounting Review, VIII
(December, 1933), 272.
""Administration of Federal Securities Act," The Journal of Accountancy, LVI (July, 1933), 7.
^"American Institute of Accountants," The Accountant, XC (February, 1934), 197.
158 History of Public Accounting
Securities Exchange Act of 1934
The purpose of the Securities Act of 1934 was stated in the pre-
amble as follows:
An act to provide for the regulation of security exchanges and of over-the-
counter markets operating in interstate and foreign commerce and through the
mails, to prevent inequitable and unfair practices on such exchanges and mar-
kets, and for other purposes. 21
In 1934 several amendments to the Securities Act of 1933 were
passed by Congress. One of these amendments took the administra-
tion of the acts away from the Federal Trade Commission and gave
it to a new Securities and Exchange Commission. Among the ex-
tensive regulatory powers conferred upon the commission were
those relating to standards of accounting and financial disclosure
of all corporations making public offerings of securities in interstate
commerce through the mails, and of all corporations registered with
national security exchanges. 22
The 1934 amendments brought all security exchanges under the
Securities and Exchange Commission. Financial statements filed
with all of the Security Exchanges as well as the Securities and Ex-
change Commission had to be certified by a public accountant,
whereas in the 1933 act the certified statements applied to the
issuance of new certificates. The 1934 act then further broadened
the area of auditing functions of the certified public accountant.
The new commission approached the problems at the outset by
calling a group of prominent accountants into consultation and
asking them to appoint a committee to cooperate in setting up re-
porting forms. After many months of study by this committee and
the representatives of the Commission, basic forms for reporting
accounting information were agreed upon. This action taken by
the Securities and Exchange Commission was a source of gratifica-
tion to many accountants, who considered that the Securities and
Exchange Commission could render effective some standards of
^Securities Exchange Act of 1934, An Act of June 6, 1934, 48 Stat. 881.
^Chester T. Lane, "Cooperation with the Securities and Exchange Commission," The New York
Certified Public Accountant, VIII (April, 1938), 6.
Public Accounting in the United States— 1928-1949 159
reporting which had long been advocated by the accounting pro-
fession itself. 23,24
Liability of Accountants under the Securities and Exchange Act
The cause for alarm over the Securities Act of 1933 was re-
moved, in large measure, by the 1934 amendments affording a
sounder basis for recovery and reducing from ten to three years the
period within which action could be taken. Under the 1934 act,
the party suing had to rely on the statements issued. Only damage
caused by such reliance on the statements could be recovered. 25
Perhaps too much emphasis has been laid on the unlimited liabil-
ity imposed by the acts, although unquestionably the hazards of
continuing in professional practice have been greatly increased.
However, if it was possible for the accountant signing a registration
statement to satisfy himself that he had been dealing with a client
who was both ethical and responsible, if his examination was com-
plete and extensive so that it could be favorably compared with
other standards of the profession (for example, the auditing pro-
cedures set forth in the American Institute and Federal Reserve
Board's pamphlet "Verification of Financial Statements"), if he had
satisfied himself by using the procedures covered in this outline,
the auditor could give an unqualified opinion without fear of
assuming any undue liability. 26
Commission's Dependence on Public Accountants
The Securities and Exchange Commission has depended a great
deal upon the independent public accountants and has not at-
tempted to lay down hard and fast rules regarding the type of audit
or the specific form of the financial statements required. Certain
minimum requirements are specified in each form, but much is
^Andrew Stewart, "Accountancy and Regulatory Bodies in the United States," The Journal of Ac-
countancy, LXV (January, 1938), 37.
2 *T. H. Sanders, "Recent Accounting Developments in the United States," The Accountant, C (April
1939), 542.
^Spencer Gordon, "Liability of Accountants under Securities Act of 1934," The Journal of Ac-
countancy, LVIII (October, 1934), 257.
^Rodney F. Starky, "Practice under the Securities Act of 1933 and the Securities Exchange Act of
1934," The Journal of Accountancy, LVni (December, 1934), 447.
160 History of Public Accounting
left to the judgment of the accountant. 27 Thus the public account-
ant has a direct professional interest in one part of the Securities
and Exchange Commission's operations, the registration division.
The registration requirements of the Securities and Exchange Com-
mission which cover new issues under the Securities Act as well as
securities listed on national exchanges "under the Securities Ex-
change Act demand financial statements certified by indpendent
public accountants. 28
These Securities Acts of 1933 and 1934 were indirectly very
beneficial for auditing standards in engagements not covered by the
laws. The auditor could point for the first time to rulings of a
government agency which set the minimum auditing and reporting
standards for markets covered by the acts. The client could no
longer dictate what the auditor should include in his certificate on
the audits performed under the Securities Acts. Nor could he go
to another auditor to get a certificate more to his liking, inasmuch
as that accountant would have to observe the same minimum
standards.
The importance of the Securities Acts in this respect cannot be
overemphasized. The laws affected not only the standards of those
firms practicing before the Securities and Exchange Commission,
but also those of the entire profession. Accountants with the forti-
tude to stand firm on their convictions were now backed by federal
law.
With so much emphasis being placed on auditing and auditing
standards and later on auditing procedures, this might be called
the period of the independent audit.
Opinions of the Commission
On April 1, 1937 the Securities and Exchange Commission made
an important announcement: the Commission intended to pub-
lish from time to time its opinions on certain accounting principles
as they might arise in specific cases. 29 These releases and the financial
^Carman G. Blough, "The Relationship of the Securities and Exchange Commission to the Ac-
countant," The Journal of Accountancy, LXIII (January, 1937), 25.
^C Aubrey Smith, "Accounting Practice under the Securities and Exchange Commission," The Ac-
counting Review, X (December, 1935), 325.
^Editorial, "Accounting and the Securities and Exchange Commission," The Journal of Accountancy,
LXIII (May, 1937), 323.
Public Accounting in the United States— 1928-1949 161
statement forms required by the Commission have profoundly in-
fluenced the financial reporting of corporations. As cited in The
Journal of Accountancy,, one of their special reports states:
At all times the commission had drawn heavily on the experience and counsel
of . . . professional associations of accountants.
... It has often been said that the objectives of the accounting profession and
the Securities and Exchange Commission are much the same. Both believe in
providing investors with an independent and objective view of the affairs of
corporations in which the public invests its savings. 30
Both the profession and the Commission have contributed to the
development of generally accepted accounting procedures. The
reports contain references both to the Accounting Series Releases
expressing the opinions of its chief accountant, and to the Account-
ing Research Bulletins published by the American Institute of
Accountants.
Independence of Accountants in Reporting
to the Securities and Exchange Commission
A real independence for the auditor is as necessary in the ful-
fillment of his functions as an unofficial representative of the in-
vesting public as the recognition of privileged communications is
to the fulfillment of the lawyer's function. It is the public account-
ant's well-developed sense of professional independence as quasi-
public representative of the interest of inarticulate and scattered in-
vestors that places so much responsibility on the profession. They
are, as A. C. Littleton says, professional men who already are well
suited to "protect those whom they serve against spoliation." 31
The Commission, in Accounting Series Release No. 2, indicated
that the independence of an auditor might be questioned if in his
capacity as accountant he had had too much to do with manage-
ment decisions reflected in the accounts. This is the area in which
^Editorial, "Ten Years of Securities and Exchange Commission," The Journal of Accountancy,
LXXIX (June, 1945), 427.
81 A. C Littleton, "Auditor Independence," The Journal of Accountancy, LIX (April, 1935), 290.
162 History of Public Accounting
there appear to have been the greatest differences of opinion be-
tween the Commission and the profession.
There are two approaches to the problem of independence. One
is the application of what has been called objective standards— that
is, rules describing certain relations— which the accountant must
avoid or be found lacking in independence. An example is the
generally accepted rule prohibiting the holding by an accountant of
a substantial financial interest in the company which he audits. The
other approach originates in the recognition that independence is
an attitude of mind and a manifestation of integrity and character.
This latter attitude seems to belong to those professional account-
ants who have the interest of the profession as well as their own
in mind.
The concern of the Securities and Exchange Commission, in giv-
ing attention to the subject of independence, is presumably about
the reliability of the information made available to investors. The
Commission desires reasonable assurance that auditors who certify
financial statements will express honest and impartial opinions. If
auditors maintain relationships which are obviously inconsistent
with this purpose, the Commission has the right to consider them
not independent under its rules. If no such obviously inconsistent
relationship appears to exist, the Commission should have before it
evidence that the opinion of the auditor is in fact not honest or
impartial before it holds him not independent. 32
The practice of accounting under the requirements of the Secur-
ities and Exchange Commission, Securities Act of 1933, and the
Securities Exchange Act of 1934, has been beneficially affected not
only by the recognition of the advantage to stockholders of requir-
ing examinations by public accountants, but also by the enunciation
by a government agency of certain accounting principles without at-
tempting uniformity. 33 Thus the Securities Act of 1933 and the
Securities and Exchange Act of 1934, insofar as they relate to ac-
counting matters, are^designed to obtain and present to the investor
information regarding a registrant's financial condition and opera-
tions adequate for making sound judgments as to the value of its
securities.
32 Editorial, "Securities and Exchange Commission Release on Independence of Public Accountants,"
The Journal of Accountancy, LXXVII (March, 1944), 181.
33 Albert J. Watson, "Practice under the Securities Act," The Journal of Accountancy, LIX (June,
1935), 445.
Public Accounting in the United States-1928-1949 163
Auditing standards are often changed as a result of court deci-
sions. Securities and Exchange Commission investigations have had
an even more direct and certain effect on the responsibility of the
independent auditor. Perhaps the most noted investigation was the
McKesson & Robbins case.
McKesson & Robbins Case— Background
The McKesson & Robbins case brought out the necessity for
additional auditing standards. It occurred at a time when the
American Institute of Accountants had issued the 1936 statement
on auditing procedures to be followed prior to certifying the finan-
cial condition of an enterprise. The pamphlet published by the
Institute was supposed to have been the latest thing in auditing
standards and procedures. Yet less than two years later the McKes-
son & Robbins case proved the inadequacy of the procedures pre-
scribed in this statement.
In February, 1938, Julian Thompson, one of the lenders to Mc-
Kesson & Robbins, began to notice that, although the crude drug
operations showed the best profits of all the McKesson divisions,
these profits were always plowed back into new purchases, no cash
ever accruing to the company. The directors, who had previously
voted to reduce inventories by $4 million in four months, again
requested Mr. Coster, president, to make the reduction. However,
by the end of the year, crude drug inventories of McKesson &
Robbins had risen another $1 million. Questions addressed to
Coster drew evasive answers, so Julian Thompson refused to sign
$3 million worth of debentures until proof of the physical existence
of the assets of the crude division was furnished. Soon thereafter
the Securities and Exchange Commission investigated McKesson
& Robbins.
The Securities and Exchange Commission examiners discovered
that during the previous twelve years Coster and his confidants had
stolen about $2.9 million of McKesson & Robbins money. They
also found that the crude drug division was separated into two
parts, one domestic and legitimate, and the other foreign and
wholly fictitious. Costers' fraud consisted of pretending to purchase
crude drugs from drug sources, paying for them with company
funds, pretending to sell them to bona fide foreign dealers, and
164 History of Public Accounting
paying the company back part of its own money through dummy
corporations. 34
The auditors were furnished inventory sheets signed or initialed
by company employees prior to 1935; they test-checked the items to
the perpetual inventory records and checked the inventory sheets
for clerical accuracy. After 1934, the auditors obtained confirma-
tions of the quantities presumably in the hands of suppliers who
were supposed to have held the goods until they were sold. In addi-
tion the auditors checked the prices shown in the inventory sheets
by reference to purchase invoices covering a substantial portion of
the quantities of each item. The auditor also obtained certificates
signed by two or more McKesson officials covering quantity and
condition of inventories stated in the balance sheet.
The auditors were furnished detailed lists of customers' accounts,
verifying the total of open balances with the general ledger con-
trols. Accounts covering the sale of crude drugs were test-checked
as to charges with perpetual inventory records, copies of customers'
invoices and shipping advices supporting these debits. These docu-
ments were all forgeries. Credits to customers' accounts were checked
to cash records and to statements or credit advices from Manning and
Company (forgeries). Coster asked that these accounts not be con-
firmed directly. 35
Public Hearings before Securities and Exchange Commission
On January 5, 1939, the Securities and Exchange Commission
began public hearings in New York City before Adrian C. Hum-
phreys, Examiner, for the purpose of determining the scope, char-
acter, and detail of the audit in the preparation of the financial
statements of McKesson & Robbins, Incorporated; also the extent
to which generally accepted auditing procedures had been adhered
to in the performance of the audit by Price, Waterhouse and
Company.
By February 20, 1939, the witnesses for McKesson & Robbins and
the accounting firm had been heard, and the first stage of the in-
vestigation was complete. At that time the Commission began the
examination of expert witnesses for the purpose of defining gener-
ic. W. DeMond, Price, Waterhouse and Company in America (New York: The Comet Press, Inc.,
1951), p. 262.
ssibid., p. 264.
Public Accounting in the United States— 1928-1949 165
ally accepted auditing procedures by means of a sampling of the
opinions of a cross section of the public accounting profession.
The following twelve representatives of the public accounting
profession were examined by William W. Werntz, chief accountant
of the Commission:
Samuel J. Broad, New York
C. Oliver Wellington, New York
Victor H. Stempf, New York
William H. Bell, New York
Norman J. Lenhart, New York
John K. Matheison, Philadelphia
Henry A. Home, New York
Charles B. Couchman, New York
Hiram T. Scovill, Urbana, Illinois
Joseph J. Klein, New York
George D. Bailey, Detroit
Charles W. Jones, Chicago
Most of the questions asked these men related to "Examination of
Financial Statements by Independent Public Accountants," a bulle-
tin reissued by the American Institute of Accountants in 1936. It
was the general agreement of the witnesses that the purpose of the
statement was to formulate generally accepted practice for the bene-
fit of the profession and the public, rather than to introduce new
procedures or to make improvements upon old ones.
In the opinion of these witnesses, the procedures followed by the
accounting firm were such as were generally accepted at that time.
It was not customary for the auditors to confirm receivables directly,
nor was it necessary for them to check the physical existence of in-
ventories. The Kingston Cotton Mills case was the only court deci-
sion at the time in which inventories had been considered, and this
did not require physical test of inventories by public accountants.
In answer to one of the questions regarding the discovery of fraud,
Mr. Bell answered:
An examination made in accordance with the bulletin ought, in my opinion,
to disclose any fraud of relatively large amount except perhaps where there
has been widespread collusion or forgery of records. 36
^"Testimony of Expert Witness at Securities and Exchange Commission Hearings," The New York
Certified Public Accountant, IX (April, 1939), 318.
166 History of Public Accounting
Commission's Conclusion
The commission concluded that the audits performed by Price,
Waterhouse and Company substantially conformed, in scope and
procedure employed, to what was generally considered mandatory
during the period of Girard-McKesson engagements. The account-
ants' failure to discover the gross overstatement of assets and of
earnings was attributable to the manner in which audit work was
done. In carrying out the work, the auditor failed, in the opinion
of the S.E.C., to employ that degree of vigilance, inquisitiveness,
and analysis of the evidence available that is necessary in a pro-
fessional undertaking and that is recommended in all well-known
and authoritative works on auditing. In addition, the overstatement
would have been disclosed if the auditors had corroborated the
company's records by actual observation and independent confirma-
tion through procedures involving regular inspection of inventories
and confirmation of accounts receivable. Though these audit pro-
cedures were considered better practice and were used by many
accountants, they were not considered mandatory by the profession
prior to the hearing. 37
Letter from Price, Waterhouse and Company
On November 15, 1940, the firm of Price, Waterhouse and
Company sent the following letter to William Wardell, Trustee of
the estate of McKesson & Robbins, Inc.:
You have informed us of certain losses sustained by McKesson & Robbins, Inc.,
Debtor, and its predecessor and subsidiary companies, in connection with the
fraud and dishonesty of the former President of the Debtor, his three brothers,
and certain other persons, who were engaged in a conspiracy to defraud the
companies concerned. You have also publicly asserted that certain of the officers
and directors of McKesson & Robbins, Inc., may have been negligent in the
performance of their duties in failing to discover the existence of the fraud and
hence legally responsible for losses thereby occasioned.
You have discussed with us your claim that we, as independent public ac-
countants, may also be responsible for such losses, by reason of the fact that our
examinations of the books and records of the McKesson $c Robbins Companies
did not disclose such fraud, dishonesty and negligence.
87 C. W. DeMond, Price, Waterhouse and Company in America, p. 274.
Public Accounting in the United States— 1928-1949 167
As we have already advised you, it is our firm conviction, formed after a
review of all the facts, even in the light of hindsight, both by the Securities
and Exchange Commission and by members of our firm acting independently,
that our work during the entire period of our relationship with the McKesson
& Robbins companies was conducted carefully and in accordance wtih generally
accepted accounting practice and procedure.
Although subsequent disclosures suggest possibility that certain additional
procedures might have resulted in discovery of the fraud, such procedures were
neither required nor customary under generally accepted accounting practice
and could not have been undertaken except upon the express instructions of
those officers of the McKesson & Robbins companies who engaged our services.
Those officers did not so instruct us, although they were advised by us in
writing that our examinations were not sufficiently extensive to reveal either
possible misappropriations of funds or manipulations of the accounts.
It is our position that in the conduct of the limited character of examina-
tion for which we were employed, and which was described by our certificates
and by our reports, we were not guilty of any negligent act or omission or
otherwise at fault, but that we were victims of the same fraud of which the
McKesson & Robbins companies were victims. Furthermore, we believe that this
position would be sustained in any litigation by which you might seek to im-
pose liability upon us in connection with the losses in question.
As a result of the fraud practiced upon us by the former President of McKes-
son k Robbins, Inc., and others, we have from time to time expressed opinions
to the effect that various financial statements of the McKesson & Robbins
companies fairly presented their position and the result of their operations.
These opinions have, with the discovery of the fraud, proved to be mistaken.
Nothwithstanding the fact that the opinions were given in good faith, after
the performance of the work for which we were employed with due care and
in accordance with the highest professional standards, we are willing, and
hereby offer, to refund to you the sum of $522,402.29, the total amount re-
ceived by us from McKesson 8c Robbins companies in respect of all such
opinions subsequent to January 1, 1933. 38
The trustee recommended that the offer made by Price, Water-
house and Company was fair and that it was in the best interest of
McKesson & Robbins to accept the offer. Thereupon the court in-
structed the trustee to accept the firm's proposal.
The following words of caution were given the profession in the
United States in The Accountant, the official public accounting
publication in England:
&Ibid., p. 273.
168 History of Public Accounting
A case so extremely exceptional as McKesson & Robbins, though rightly the
occasion of heartsearching, cannot properly be used as the basis of general
action. Hard cases make bad law, and in the sphere of accounting and auditing
it would, in our judgment, be the very extremity of folly to prescribe panic
measures because a single corporation, conceived, conducted and supported in
the vilest form of collusive fraud, has succeeded for a time in eluding the ordin-
ary vigilance of an auditor. McKesson & Robbins was not one case in a hundred,
or even one case in a million; it was the grand exception unlikely ever to be
repeated and unworthy of being the occasion for the laying of burdens and
expense on a community in which, after all, honesty is the prevailing rule. 39
The significant development of the McKesson & Robbins case
was not in this case itself nor in the fact that the American Institute
of Accountants took action in revising the minimum auditing pro-
cedures. Even before the case was ruled on by the Commission, the
public accounting profession, through its national organization, had
taken steps to re-examine the then generally accepted auditing stand-
ards and procedures. It was through these revised standards and
extension of procedures that the case affected the profession and
contributed to national recognition for it and for the Institute.
Then, too, members of the profession were increasingly looking
toward their organization as the medium through which the profes-
sion could operate cooperatively to raise its standards and to enhance
the prestige of accountancy.
The refund of accounting fees to the clients of the public ac-
countant in this case indicated to the profession that their liability
could be tremendous if found guilty by the Securities and Ex-
change Commission. In such a case the public accountant would
show less persistence in the future in carrying out examinations of
wide scope, and businessmen would be more reluctant to place
limitations on the audit than in the past.
Extension of Audit Procedures
The importance of the McKesson & Robbins case, however, was
such as to require a thorough re-examination of the auditing pro-
cedures previously accepted as standard.
S9<1 Independent Audits in America," The Accountant, CII (April, 1940), 370.
Public Accounting in the United States— 1928-1949 169
The American Institute of Accountants announced publicly that
it intended to review carefully customary auditing procedures be-
cause of the events brought to light by the Securities and Exchange
Commission's investigations of this case and then to recommend
what, if any, changes in procedures should be adopted by the pro-
fession. The American Institute and the New York State Society of
Certified Public Accountants arranged for informal conferences
with representatives of the Securities and Exchange Commission to
discuss the character and scope of generally accepted auditing pro-
cedures and the possibility of improvement. 40
The starting point for the discussion of the Committee on the
Extension of Auditing Procedure was the pamphlet published in
January, 1936, by the American Institute of Accountants entitled
"Examination of Financial Statements," which was rather more
than a restatement of the 1929 pamphlet. Neither pamphlet re-
quired circularization of receivables or observation or testing phys-
ical quantities of inventories. 41 A committee was appointed by the
president of the Institute to study this document and make recom-
mendations for changes.
The report of the committee on auditing procedures on May 9,
1939, made recommendations on the following matters:
Examination of inventories
Examination of receivables
Appointment of independent certified public accountants
Form of independent certified public accountant's report. 42
The major point made by the committee on inventories was that
the corroboration of inventory quantities either by observing the
taking of inventories or by physical test should be accepted as a
normal audit procedure. With regard to receivables, the committee
recommended that all receivables should be verified by direct
communication with the debtor, by either negative or positive
methods. The committee further recommended that the auditor
*>"The American Institute and Audit Procedure," The Accountant, C (February, 1939), 263.
^Victor H. Stempf, "The Securities and Exchange Commission and the Accountant," The New
York Certified Public Accountant, VIII (April, 1938), 12.
^"Extension of Auditing Procedure," The Accountant, C (June, 1939), 850.
170 History of Public Accounting
should be selected by the directors and voted on by the stockholders,
and, lastly, that the scope and opinion sections should be distinct on
the auditor's report. 43
This pamphlet, which was the first of several, was entitled "Ex-
tension of Auditing Procedure." The report, in effect, became a
part of the generally accepted standards of auditing procedure after
issuance because it was approved by the American Institute of
Accountants. 44 For example, the inclusion of verification of in-
ventory quantities on a physical basis and the direct confirmation
of receivables with the debtor have become a part of the auditor's
standard procedure since 1939. This statement, and others later,
have been made in an effort to raise the standards of auditing
practice.
Prior to the McKesson Sc Robbins case, some segments of the
profession had been desirous of extending the minimum auditing
procedures. This case brought action by the profession on a national
level.
Reporting Problems As a Result of the War
The effect of World War II on the profession can best be shown
by reference to the Accounting Research Bulletins. The first of
seven bulletins published as a result of the onset of the war was
No. 13, issued in January, 1942. It pertained to accounting for
special reserves arising out of the war, and the methods of handling-
possible costs or losses resulting from the war. 45
A major problem for the accounting profession arose as a result
of the War Profits Control Act. 46 Under this act, contractors and
subcontractors had to maintain adequate records so that profits
could be determined with reasonable certainty prior to the com-
pletion of the contract. The government had the right to renegoti-
ate the contract and recover that portion of the price found to be
excess profits.
In December, 1942, a bulletin was issued entitled "Post-War
Refund of Excess Profits Tax." The Treasury Department had to
* s Ibid., p. 850.
"Norman J. Lenhart, "Development in Auditing Procedures Since the Extension of Such Procedures
in 1939," The New York Certified Public Accountant, XVII (September, 1947), 565.
^Accounting Research Bulletin No. 13, January, 1942, pp. 111-118.
^Accounting Research Bulletin No. 15, September, 1942, pp. 123-134.
Public Accounting in the United States— 1928-1949 171
make a credit in each taxpayer's account for 10 percent of the excess
profits paid, thus providing a fund that would be available for the
conversion to peace-time production. 47
Bulletin No. 19, "Accounting under Cost-Plus-Fixed-Fee Con-
tracts," was issued in 1942. The procurement of war materials had
greatly extended the use of this type of contract, under which the
contractor was periodically reimbursed for his expenditures plus
a fixed fee. This procedure resulted in many accounting problems,
one of which was when to recognize profits. In such cases the com-
mittee recognized the special nature of such contracts and approved
the recognition of profits upon partial fulfillment of the contract. 48
A supplement to Bulletin 15 was issued in 1943. It was entitled
"Renegotiation of War Contracts" and dealt further with the
problems of financial reporting when long periods of time elapse
between cancellation of a contract or completion and final settle-
ment. 49
In April, 1945, the sixth bulletin dealing directly with war
problems was issued under the title "Accounting For Terminated
War Contracts." This bulletin was concerned with the problems of
fixed-price contracts that were terminated. The recognition of
profits accruing as a result of cancellation of these contracts for the
convenience of the government and the claims of the company
against the government should be given full disclosure. 50
The October, 1946, bulletin, No. 26, was entitled "Accounting
for the Use of Special War Reserves." This concerned the handling
of losses or costs resulting from the facilities acquired by the com-
panies for war purposes. 51
The American Institute of Accountants Committee on Auditing
Procedures issued several bulletins on war problems of the auditor.
The first bulletin, that of June, 1942, was a joint report of the
Committee and the New York State Society. It was stated therein
that the auditor's work should be spread throughout the year. Also,
more emphasis should be placed on the system of internal control
and the adequacy of the system.
"Accounting Research Bulletin No. 17, December, 1942, pp. 147-150.
^Accounting Research Bulletin No. 19, December, 1942, pp. 155-162.
^Accounting Research Bulletin No. 21, December, 1943, pp. 171-177.
^Accounting Research Bulletin No. 25, April, 1945, pp. 203-214.
51 Accounting Research Bulletin No. 26, October, 1946, pp. 215-222.
172 History of Public Accounting
The major accounting problem arising from World War II was
the confirmation of physical inventories. Under the conditions of
war, it was considered increasingly acceptable for the accountant
to use sampling techniques in verifying the physical existence of
inventories.
These problems, along with the reduction in the number of
accountants available to practice, put a terrific strain on the profes-
sion. Many qualified accountants were called into service. Even
under these adverse conditions the profession made an important
contribution to the war effort by maintaining high professional
standards with small numbers of qualified experienced assistants.
Drayer-Hanson Case
The war had an effect on the profession lasting for several years
after the war ended. One of the cases tried was Drayer-Hanson,
which arose as a result of an audit performed by Barrow, Wade,
Guthrie and Company.
On April 29, 1946, the corporation filed a registration state-
ment with the Securities and Exchange Commission, as specified
under the Securities Act of 1933, covering the issuance of Class A
stock to the public. The registration statement was accompanied
by the financial statements of the company as a partnership and
pro forma statements as a corporation. The statements were cer-
tified by Barrow, Wade, Guthrie and Company. These financial
statements represented the net income to be approximately $260,000
for the partnership for a period of ten months ending April 30,
1946, and $91,000 when computed as though the partnership had
been incorporated.
The following is an excerpt from the auditor's statement of
opinion:
We were present only during the taking of a physical inventory, which did
not include work in process, as at March 31, 1946, and satisfied ourselves as to
the procedure followed in the determination of inventory quantities as to that
date.
Sometime in June, 1947, the Commission was advised by Barrow,
Wade, Guthrie and Company and Drayer-Hanson, Incorporated,
Public Accounting in the United States— 1928-1949 173
that the April 30, 1946, balance sheet and income statement were
in error. The error consisted of an overstatement of the work-in-
process inventory amounting to $87,000, resulting in an overstate-
ment of the net income and net worth as of April, 1946. The public
accounting firm contributed $87,500 (the approximate amount of
the inventory error) to Drayer-Hanson so the financial condition of
the company would not be damaged as a result of the error.
After the evidence was presented to the Commission, they took
into account the fact that the public accountants had at once re-
vised their procedure to prevent a recurrence. Moreover, the firm's
prompt reporting of the incident and the payment of an amount
sufficient to cover the shortage reflected a cooperative attitude. The
recommendation was not to bar Barrow, Wade, Guthrie from prac-
tice before the Commission, either temporarily or permanently
because of their role in this case. 52
The proceedings in this case emphasized the need for more in-
tensive training on detailed audit procedures. Consequently the
more progressive public accounting firms began setting up training
programs for newly-hired junior accountants. The programs have
not been restricted to this group, but have been extended to each
classification that a firm might have in its auditing department. The
purpose of these training programs is to keep the practicing audi-
tors up to date as well as to review the basic auditing programs and
standards of the firm.
Professional Organization and Jurisdiction
Public Accounting Legislation
For the protection of investors and businessmen, legislation to
regulate the profession had been advocated for several years. In
several states regulatory laws had been passed with the purpose of
limiting the practice of public accounting to certified public ac-
countants and registered noncertified public accountants.
In the United States recognition and regulation of the public
accounting profession is a function of state government. The first
C.P.A. law (New York, 1896) provided for the issuance of the
52 " After Hearings, the S. E. C Dismisses 11(e) Proceedings against Barrow, Wade, Guthrie and
Company Growing out of Drayer-Hanson Case," The Journal of Accountancy, LXXXVII (June, 1949),
514.
174 History of Public Accounting
C.P.A. certificate by a political authority, not a professional society.
There was no attempt in the early C.P.A. laws to recognize or
regulate noncertified public accountants. 53
Prior to the enactment of regulatory legislation, noncertified pub-
lic accountants performed the same functions as the certified public
accountant. Many C.P.A.'s believed that the public interest required
regulatory legislation.
There have been four major legal decisions dealing with regula-
tory legislation. The first two are The State ex rel. Short, Attorney
General et al. v. Riedell et al. in Oklahoma in October, 1924, and
Frazer v. Shelton in Illinois in 1926. These two decisions held that
when practice is restricted to those having a certificate from the
State Board of Accountancy it "is an unwarranted regulation of
private business and the right of the citizen to pursue the ordinary
occupations of life." 54 In 1932 the Tennessee Supreme Court held
that it was unconstitutional to prohibit all work involved in the
practice of public accountancy by those not licensed as certified
accountants or public accountants and cited the above mentioned
Oklahoma and Illinois cases.
The fourth case on constitutionality was decided in December,
1936, by the Wisconsin Supreme Court in the case of Wangerin et
al. v. Wisconsin State Board of Accountancy, et al. This decision
held that the Wisconsin accountancy law was constitutional and
that it did not limit the right to perform accounting work to persons
certified under the act, but expressly permitted such work by others
so long as their work was not held out as that of a public account-
ant. 55
The court further held that all qualified persons seeking a license
as certified public accountants were entitled to receive it upon
compliance with the law; that the law made provision for those
already engaged in the practice of accountancy who do not seek
license as certified public accountants by permitting them to prac-
tice as public accountants; that by the terms of the act all those
who were engaged in the profession of public accounting when
the act took effect were entitled to certificates of authority; and
s'Jay A. Phillips, "A Summary of State Legislation during the 1946-1947 Season Affecting Account-
ants," The Journal of Accountancy, LXXXIV (August, 1946), 131.
"Charles F. Coates, "State Legislation Relative to the Practice of Accountancy," The Journal of
Accountancy, LXXXII (September, 1946), 224.
**lbid., p. 225.
Public Accounting in the United States— 1928-1949 175
finally that in making provisions for those already engaged in the
practice of accountancy, the legislature followed the established
precedent of the medical and other professions.
The work of a public accountant was distinguished from that
of a public bookkeeper:
A person may under contract act as bookkeeper for as many persons or
firms as he chooses. It is when he holds himself out to the public as one skilled
in the profession of accounting that he comes within the statute.
... A bookkeeper can do anything now that he could do before the chapter
was enacted, except that he cannot represent himself to be a public account-
ant. He can render the same service to his employers as any other accountant
may render, but it cannot be put before the public as work of a public ac-
countant or a certified public accountant. 56
The Wisconsin act limited the practice of accountancy to holders
of state-granted certified public accountant certificates and to a
closed class consisting of those who were in practice at the date of
enactment and presented evidence of four years' experience. They
received certificates of authority to continue in practice as "public
accountants." This instance was the first in which an accountancy
act of the two-class restrictive type was clearly held by a state
supreme court to be constitutional. 57
By 1960, thirty-two states and Puerto Rico had regulatory type
accounting laws under which no one may practice as a public ac-
countant who is not in possession of a license or certificate issued
by the respective state authorities.
The form of the restrictive legislation may vary, but it has a
fundamental substance. The following is the core of a model bill:
A. Model bills
(1) Give a legal status to accountants.
(2) Require that certified public accountants register with a board of
registered accountants.
(3) Establish the two-class system— certified public accountants and
public.
™Ibid., p. 226.
57 Editorial, "Restrictive Act Upheld," The Journal of Accountancy, LXIII (January, 1937), 10.
176 History of Public Accounting
(4) Permit the registration of public accountants without examination:
tax consultants, accountants, bookkeepers, or those holding them-
selves out as public accountants.
B. A waiver of certain requirements now existing to attain the status of
C.P.A. (educational) (experience) .
(1) Dying Class.
(2) Grandfather clause. 58
Modern regulatory accountancy legislation has two principal
purposes. The first is to restrict to certified and registered public
accountants the right to use the title Public Accountant and ex-
press opinions regarding financial statements of clients. The second
is to control the ethics of the profession by authorizing the State
Board of Accountancy to promulgate rules of professional con-
duct. 59 In other words, the idea is, first, to close the profession to
all except certified public accountants and registered non-certified
public accountants, and then to control the activities of the mem-
bers of the profession by the enforcement of a strict code of pro-
fessional ethics. 60
Because of assumed constitutional restrictions, such limiting legis-
lation usually establishes a temporary class of public accountants
which, during its continuance, has all the privileges of practice
accorded to certified public accountants. This group, however,
usually carries a special designation other than certified public
accountant and, in theory, is limited to those entering at or about
the date on which restrictive legislation becomes effective. 61
The usefulness and the prestige of the profession depend on uni-
formly high standards of performance. Hence, it is in the public
interest as well as that of the profession that such work be con-
trolled and, so far as possible, limited to persons of established
fitness. As stated by Wilcox, opinion reports should be issued only
^James Langan, "Problem Encountered in Sponsoring or Opposing State Regulatory Legislation,"
How to Improve Accounting and Tax Service to American Business (New York: American Institute of
Accountants, 1950), p. 188.
59 William R. Winn, "The Case against Regulatory Accountancy Legislation," The South Carolina
C.P.A. , V (October, 1947), 4.
60 Robert L. Miller, "Why Regulatory Accounting Legislation Is Unsuccessful," Public Relations and
Legislative Control of the Accounting Profession (New York: American Institute of Accountants, 1951),
p. 30.
61 William D. Cranstoun, "Restrictive Legislation," The New Jersey C.P.A. Journal, XXII (November,
1951), 1.
Public Accounting in the United States— 1928-1949 177
by certified public accountants; this restriction of practice can be
made only by legislation. However, the immediate effect of such
legislation would be to deprive some persons of an existing right
to make a living, thus interfering with constitutional rights. 62 An
interim period is necessary during which noncertified public ac-
countants already in practice are permitted to continue. The offi-
cially adopted policy of the American Institute of Certified Public
Accountants has the long-range objective, after the transitional
class of registered accountants has disappeared, of limiting practice
as professional public accountants to C.P.A.'s.
The American Institute of Certified Public Accountants esti-
mates that there are three or four noncertified public accountants
for each certified one in the United States. At the inception of any
regulatory law, there are many noncertified accountants who have
not demonstrated their qualifications or competency. Some mem-
bers of the profession argue that recognition of persons outnumber-
ing the certified public accountants in the particular state without
any test of the competency of these individuals cannot improve pro-
fessional work or conduct, but serves rather to dilute the quality
of professional work and conduct to the extent of the incompetency
of the persons so licensed. 63
The question then arises whether the standards of the profession
should be lowered in order to help raise the noncertified public
accountants to a level which some are unwilling or unable to at-
tain through their own efforts. Some C.P.A.'s argue that the regis-
tration of noncertified accountants might well lead to a situation
which would place the entire future of the profession in jeopardy.
The standing of the accountancy profession depends upon the con-
fidence of the public. The public expects the profession to set forth
the facts in an unbiased manner and relies on the facts which it
presents. If the profession supports permissive legislation for those
accountants who are known to be less than fully qualified, public
confidence in the profession will probably be shaken. 64
The most logical method of maintaining confidence in public
62 E. B. Wilcox, "The Pros and Cons of Regulatory Legislation," The Indiana Certified Public Ac-
countant (May, 1948), 3.
^Robert L. Miller, "Why Regulatory Accounting Legislation Is Unsuccessful," Public Relations
and Legislative Control of the Accounting Profession, p. 31.
^William R. Winn, "The Case against Regulatory Accountancy Legislation," The South Carolina
C.P.A., V (October, 1947), 7.
178
History of Public Accounting
accountants is to have a "closed" clause in the restrictive legisla-
tion. In this way the nonregistered accountants that are licensed
will become a "dying class." However in some states which have
enacted regulatory laws the time for initial registering has been
extended. In other states public accountants have been members of
the state board, and the practice of public accountancy by other
than certified public accountants and licensed public accountants
has been authorized. Worst of all, some have granted C.P.A. cer-
tificates by waiver. 65 This practice, however, has not been common
in the last twenty years.
The profession has not attempted to create a monopoly, or reserve
the practice of public accountancy for the benefit of a special
group. 66 It would be difficult to enumerate any phases of accounting
practice which call for neither education, skill, nor experience.
The laws, then, do not prohibit a noncertified or nonregistered
accountant from performing the many other functions of public
accountants— tax returns, systems, etc.— so long as he does not hold
himself out as a public accountant. 67
In the following twenty-nine states and the District of Columbia,
accounting laws of a permissive type have been passed, and anyone
may practice public accounting, but only those persons who hold a
C.P.A. certificate of the state concerned may use the title C.P.A. :
Alabama
Arkansas
* Connecticut
Delaware
District of Columbia
Hawaii
Idaho
Indiana
Kansas
Maine
Massachusetts
Minnesota
Montana
Nebraska
Nevada
New Hampshire
New Jersey
"New York
North Dakota
* Ohio
Oklahoma
Pennsylvania
Rhode Island
South Carolina
South Dakota
*Tennessee
*Utah
Vermont
*West Virginia
Wyoming
Source: Topical Law Reports
*These states now have regulatory laws (J.D.E.)
^Robert L. Miller, "Why Regulatory Accounting Legislation Is Unsuccessful," Public Relations and
Legislative Control of the Accounting Profession, p. 31.
^William D. Cranstoun, "Restrictive Legislation," The New Jersey C.P.A. Journal, XXII (November,
1951), 2.
67 E. B. Wilcox, "The Pros and Cons of Regulatory Legislation," The Indiana Certified Public Ac-
countant (May, 1948), 3.
Public Accounting in the United States— 1928-1949 179
In the state of Pennsylvania the Institute of Certified Public
Accountants actually sponsored a permissive accounting law which
would permit public accountants to practice without any regula-
tion. 68 In fact, all permissive accountancy laws allow this.
College Degree as Prerequisite to Taking the C.P.A. Examination
Dissatisfaction with the poor showing of many candidates on the
C.P.A. examination led to the inevitable stiffening of the educa-
tional prerequisite for admission to the examination. The New
York practitioners were persuaded of this formal educational need,
and in 1929 a new law, paragraph 1498-a, provided that on and
after January 1, 1938, every candidate for examination for the
C.P.A. certificate must be a graduate of an approved course of
study at the college level, following completion of an approved
four-year high school course. The content of the college course
was divided— half to liberal arts subjects and half to professional
studies, with a minimum of 24 hours in accountancy, eight hours
in commercial law, eight in finance, and six in economics. 69
This law, the first one requiring graduation from college as a
prerequisite for the C.P.A. certificate, went into effect January 1,
1938. The popularity of the idea among professional accountants
indicates that it may be a precedent which will be written into laws
in other states, but actually only two other states have enacted such
laws. In the United States all professions depend heavily upon the
universities. The apprenticeship system does not seem adequate. 70
But a slow evolutionary period will have to follow before a reason-
able balance is reached between educational and apprenticeship
training. Most state C.P.A. laws, however, reduce or eliminate the
experience requirement if the candidate has a college degree. Thus
some recognition is given even now to the value of study in colleges
and universities.
The American Institute of Accountants Committee on Education,
even as late as 1945, recommended that all candidates should have
osjay A. Philips, "A Summary of State Legislation during the 1946-1947 Season Affecting Accountants,"
The Journal of Accountancy, LXXXIV (August, 1947), 135.
69 Emanuel Saxe, "Rule of the Society in Accounting Education," The New York State Society o)
Certified Public Accountants, Fiftieth Anniversary.
70 Editorial, "College Degree as C.P.A. Prerequisite," The Journal of Accountancy, LXIII (May,
1937), 321.
180 History of Public Accounting
at least a high school education. 71 It seems evident, then, that the
Institute's Committee is pessimistic about raising the educational
requirements for candidates in the near future. The American
Institute has recently appointed a committee to study this problem
thoroughly. It will probably be several years, if not decades, before
all of the states require college training. At the present time there
are only three states which require college degrees as a prerequisite
to taking the C.P.A. examination.
One National Organization
As early as 1924, soon after the injunction against the National
Association of Certified Public Accountants, attempts were made to
consolidate the American Society of Certified Public Accountants
and the American Institute of Accountants. These attempts failed
because the members did not feel that there was any necessity to
form a solid front.
During 1934 and 1935 a movement was inaugurated by the New
York State Society of Certified Public Accountants looking toward
the substitution of a single national organization for the then ex-
isting national organizations, the American Institute and the Ameri-
can Society. The two organizations appointed committees to meet
in an effort to reach a common basis for the merger.
After the joint committee had reached an agreement to the effect
that the profession had progressed to the point of needing a single
national organization, and had listed its ideas on the major needs
for immediate changes in organization, a conference of state society
presidents or delegates was held in Atlantic City in 1936. Follow-
ing the Atlantic City meeting, the American Institute of Account-
ants and the American Society of Certified Public Accountants
committees prepared a joint report which, it was hoped, would
receive the approval of both organizations. The entire Institute
committee approved it, but two members of the Society committee
declined to sign the report. One of them objected because of the
increase in the dues and the other one on the grounds that while
"a single national organization representing the recognized profes-
sion of accountancy in the United States is highly desirable," the
■^Editorial, "Educational Program of the American Institute," The Journal of Accountancy, LXXIX
(March,194S), 228.
Public Accounting in the United States— 1928-1949 181
joint merger report trusted too much to future possibilities rather
than being based on any definite knowledge of what the profession
really desired. 72
The following are significant passages from the merger recom-
mendation:
Merger Plan
It is proposed to merge the membership of the American Institute of Ac-
countants, hereinafter called the "Institute," and the membership of the Ameri-
can Society of Certified Public Accountants, hereinafter called the "Society,"
on the following basis:
1. The Institute shall continue as the active national organization.
2. The Institute shall be furnished with a list of the members of the Society
as of August 31, 1935, certified by the President and Secretary of the Society.
Each of the members of the Society whose name appears on such certified list
shall upon subscribing to the by-laws and rules of professional conduct of the
Institute, become a member or associate of the Institute, as he elects, without
examination or initiation fee.
3. Amendments to the by-laws of the Institute shall be adopted as follows:
b. To require that after January 1, 1936, an applicant for membership
or associateship in the Institute must hold a valid and unrevoked
certified public accountant certificate issued by the legally constituted
authorities of a State or territory of the United States of America,
provided, however, that this by-law shall not in any way affect the
membership rights of any present members of the Institute who do not
hold such certificates.
Two matters have been considered which the undersigned believe should be
left for the consideration and action of the united membership after the merger,
viz.:
a. Whether or not the name of the Institute should be changed to include
in it the words "certified public" so as to read, say, American Institute
of Certified Public Accountants;
72 Editorial, "A Single National Organization," The Certified Public Accountant, XV (October, 1935),
604.
182 History of Public Accounting
b. Whether or not the election of members of the council of the Institute
should be on a regional basis instead of at large as at present. 73
The two matters last mentioned were to be submitted to the en-
tire membership of the new organization after the merger.
Under the arrangement made, the bylaws of the American Insti-
tute of Accountants were amended to provide for the admission of
members of the Society in good standing on August 31, 1936. 74
These proposals were all agreed upon by the two organizations.
The vote for one national organization was 1,571 in favor and 70
against out of 2,835 who were entitled to vote. All members were
given an opportunity to express their opinion on the merger. 75 The
will of the majority had been expressed— The American Society of
Certified Public Accountants and the American Institute of Ac-
countants became one national organization, retaining the name
American Institute of Accountants. 76 The last annual meeting of
the Society was held at Fort Worth, Texas, October 17 and 18,
1936, at which time the final arrangements were made to transfer
the members to the Institute. 77 At the meeting of the Institute in
Dallas, Texas, October 19-22, 1936, the merger of the two organiza-
tions was completed and the list of members of the Society eligible
for membership was agreed upon. 78
The two points left to decide were the inclusion of "Certified
Public" in the name of the organization and the method of nomina-
tion and election of the members of the governing body.
None of the proposed amendments of trie bylaws of the American
Institute of Accountants, submitted to all members in a referendum
ballot dated December .3, 1936, received an affirmative vote of a
majority of the members prior to expiration of the 60-day limit for
voting on February 1, 1937. The following is the result of the ballot-
ing: 79
™lbid., p. 606.
^"Amalgamation in America," The Accountant, XCVI (March, 1937), 372.
73 "One National Organization," Bulletin of the American Institute of Accountants, No. 152, December,
1936, p. 3.
TO Harry M. Jay, "Consolidation— Now What," The Certified Public Accountant, XVI (October, 1936),
569.
"Editorial, "The Consolidation," The Certified Public Accountant, XVI (September, 1936), 517.
78 Editorial, "Institute's Annual Meeting," The Journal of Accountancy, LXII (September, 1936), 164.
ra Editorial, "Proposed Amendments to By-Laws," The Certified Public Accountant, XVII (February,
1937), 10.
Public Accounting in the United States— 1928-1949 183
Entitled to vote 3,807
Majority necessary to approve an amendment 1,904
Proposed change in name of the Institute:
In favor 1,662
Against 624
Proposed change of method of electing members of council:
First Plan— elect half of council at large and half by regions:
In favor 1,100
Against 133
Second Plan— seven members of the council elected each year
from twelve districts:
In favor 151
Against 526
Against both plans 854
In favor of both plans 130
The proposed change in the method of electing the council goes
back to the early formation of the American Association in 1887.
Soon after organization it became known as a "State of New York"
organization. That was one of the sore spots with practitioners west
of New York and the New England states. The members in the
South, Middle West, and West wanted equal representation on the
governing body of the new organization.
The problem of council representation arose again when the
American Society of Certified Public Accountants and the Ameri-
can Institute of Accountants merged. The first proposal for a
changed method of electing members of the council was sub-
mitted by the Institute's executive committee. This proposal pro-
vided for the election of half the members of the council by regional
districts and half by the membership as a whole after consideration
of the suggestions of the nominating committee. The second recom-
mendation was for the election of seven council members each year
for five years, from not less than twelve districts composed of the
United States and its territories. 80 Neither of the plans received the
necessary number of votes for approval.
The power of electing the council of the Institute remained
^"One National Organization," Bulletin of American Institute of Accountants, CLI (November,
1936), 7.
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of
Columbia
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Alaska
Hawaii
Puerto Rico
■■■■■■■■■■ """""" "T" ! ;
i ■■■ .
1920
1925
1930
1935
1940
1945
1950
YEARS IN WHICH STATES USED THE UNIFORM C.P.A. EXAMINATION
One examination a year and that in November Source: A.I.C.P.A.
Public Accounting in the United States— 1928-1949 185
with the entire membership of the organization. There were thirty-
five men in the council, seven of them to be elected each year. No
more than six members could be from one state, and by custom no
more than two could be members of the same firm.
Publishing Company
In 1931 there was formed the American Institute Publishing
Company, Inc., all of whose capital stock was owned by the Insti-
tute, and subsequently liquidated. Though the enterprise was under-
taken in a period of economic adversity, the members of the In-
stitute wanted to keep control of publications of their organization
and to further the communications going on within the profession
during a period when it was important to keep in close contact with
the developments in business, as well as in the accountancy pro-
fession.
This company assumed direct publication of The Journal of Ac-
countancy and the Certified Public Accountant Bulletins. It also
published several books, among them Evolution of Accounting to
1900, by A. C. Littleton, Twenty-five Years of Accounting Respon-
sibility, by George O. May, and Origin and Evolution of Double-
Entry Bookkeeping, by Edward Peragallo. Of the monographs put
out by the Institute's publishing company the most notable is A
Statement of Accounting Principles, by Sanders, Hatfield and Moore
(originally published by the Haskins and Sells Foundation).
Planned Examinations
In 1941 the Association of C.P.A. Examiners and the board of
examiners of the American Institute of Accountants met in De-
troit. They considered the topic of planned examinations for future
C.P.A. candidates. The following recommendations were drawn up
and approved by both committees and were included in the section
entitled "Scope."
7. There should be four separate subjects in the general examination;
namely, auditing, law, accounting theory, and accounting practice. Each should
be the subject of at least a half-day examination.
186 History of Public Accounting
8. The general subject examination should be extended to 2i/£ days con-
sisting of three mornings of §y 2 hours each and two afternoons of A\/ 2 hours
each.
9. The various topics under each subject should be included in the scope of
the examinations with major topics appearing frequently, and minor topics
being rotated in such a manner as to cover the entire subject in a five-year
cycle.
10. Topics properly a part of one subject should not be transferred to another
subject since in most states candidates are given final credit by subjects.
11. The C.P.A. examination should be set at a level to test the ability of the
candidate to qualify as a senior accpuntant. 81
The accompanying chart shows the years each state has used the
uniform C.P.A. examination. There were ten states which stopped
using the examination at one time or another. In 1937 four states,
Connecticut, Michigan, Minnesota, and Wyoming, began using the
examination again after the merger of the American Society and the
Institute.
Practice before Treasury Department
Before May 15, 1939, applicants for enrollment to practice before
the Treasury Department of the United States were required to
show
that they are of good character and in good repute, possessed of the necessary
qualifications to enable them to render such claimants valuable service, and
otherwise competent to advise and assist such claimants in the presentation of
their cases.
It was further provided by the Committee on Enrollment and Dis-
barment that applicants must demonstrate, by passing a prescribed
examination, that they possessed
^Norman E. Webster, "Planned Examination," The Journal of Accountancy, LXXV (April, 1943),
348.
Public Accounting in the United States— 1928-1949 187
the educational background, technical knowledge and ability essential to the
proper understanding of federal tax matters and the presentation of the same
before the Treasury Department.
Attorneys at law and certified public accountants who had received
their certificate by examination were exempt from this special test.
On the same date the Committee amended the regulations so as
to restrict further admissions to practice to attorneys and certified
public accountants. (There were further changes in 1958-59.) The
amended regulation read as follows:
Qualifications for enrollment, (a) Persons of the following classes who are
found, upon consideration of their applications, to possess the qualifications
required by these regulations may be admitted to practice before the Treasury
Department as attorneys or agents respectively:
1. Attorneys at law who have been admitted to practice before the courts of
the States, territories, or District of Columbia, in which they maintain offices,
and who are lawfully engaged in the active practice of their profession.
2. Certified public accountants who have duly qualified to practice as cer-
tified public accountants in their own names, under the laws and regulations
of the states, territories, or District of Columbia, in which they maintain offices,
and who are lawfully engaged in active practice as certified public account-
ants. 82
There was another amendment to the rules providing for special
enrollment for the presentation of matters before a particular
bureau or division of the Treasury. This amendment would permit
an applicant not an attorney nor a certified public accountant to
become enrolled by satisfying the Committee on Enrollment and
Disbarment, by examination and otherwise, of his qualifications to
render valuable services to claimants. 83
^Editorial, "Practice before Treasury Department," The Journal of Accountancy, LXVIII (July, 1939),
1.
^Editorial, "Practice before Treasury Department," The Journal of Accountancy, LXVIII (August,
1939), 79.
History of Public Accounting
Lawyers and Accountants Conflict
For thirty-eight years public accountants have been engaged in
federal income tax practice, as reflected in the Treasury Depart-
ment's rules and regulations mentioned earlier in this chapter.
One of the primary functions of a certified public accountant in
auditing corporate books is to determine the corporation's income
from its books of accounts and to express an opinion on the finan-
cial statement. But when the federal tax on income was accepted
as a constitutional amendment in 1913, it was necessary that this
information contained in the income statement compiled by the
corporation's auditor be adapted to a tax return. Before the fed-
eral income tax law became so complex, it was a simple matter for
the C.P.A. to do this. As he was on the ground, and knew the sit-
uation, it was natural for a corporation to call upon its auditor to
prepare its tax returns. This practice became generally accepted.
Many lawyers considered that the preparation of such returns by
an accountant and the activities involved in preparing returns
amounted to the practice of law. This issue was to be raised in lit-
igation on several occasions, the most prominent of which was the
Bercu case, which will be discussed later in this chapter.
In 1935, the American Bar Association first considered the ques-
tion of tax practice by accountants and discussed the matter
with the American Institute of Accountants' Committee on Coop-
eration with the Bar Association. In 1938 the Bar Association's
Committee on the Unauthorized Practice of Law, under the chair-
manship of Stanley H. Houck, issued a formal statement in the sec-
tion devoted to accountants. The statement is as follows:
It is the view of the Committee that it is the practice of law to engage
in any of the following activities:
(1) To give advice regarding the validity of tax statutes or regulations or
the effect thereof in respect of matters outside of accounting procedure.
(2) To determine legal questions preliminary or prerequisite to the mak-
ing of a lawful return in a lawful manner.
(3) To prepare protests against tax adjustments, deficiencies, or assessments.
(4) To represent a taxpayer at a conference with administratives in rela-
tion to matters outside of accounting procedure.
(5) To prepare claims for refunds of taxes.
Public Accounting in the United States— 1928-1949 189
(6) To prepare petitions, stipulations, or orders incident to the review of
assessments by the United States Board of Tax Appeals or any like adminis-
trative tribunal.
(7) To conduct the trial of issues before the United States Board of Tax
Appeals or any like administrative tribunal. 84
Shortly after the issuance of this statement, the Unauthorized
Practice of Law Committee met with representatives of the Amer-
ican Institute of Accountants to discuss the matter. The discussion
extended over several months, but the two groups were unable, or
unwilling, to reconcile their points of view.
Finally the negotiations ceased altogether, and both lawyers and
certified public accountants continued to engage in tax practice.
The feeling of antagonism between the two professions may have
been intensified.
It had long been the conviction of eminent members of the legal
profession and of the accounting profession that the two had many
common interests. The close relationship between lawyers and
accountants in practice, especially in dealing with problems of
corporations, led to a belief that there should be a closer relation-
ship between the organizations representing the two professions.
In 1944, a step toward achievement of this objective was taken
with the adoption of resolutions by the House of Delegates of the
American Bar Association and the Executive Committee of the
American Institute of Accountants, authorizing the establishment
of a national conference of lawyers and accountants composed of
five representatives from each organization. The representatives
from each profession were to be appointed by the respective pres-
idents.
The objectives of the new organization, the National Conference
of Lawyers and Accountants, as expressed after this first meeting on
May 6, 1944, in Philadelphia were as follows:
1. To further the development of professional standards in both professions.
2. To encourage cooperation between the two professions for the benefit of
each and the public.
"David F. Maxwell and Wililam Charles, "National Conference of Lawyers and CP.A.'s," The
Journal 0} Accountancy, LXXXI (February, 1946), 121.
190 History of Public Accounting
3. To consider misunderstandings, involving fundamental issues, between the
two professions and recommend means for disposing of them.
4. To devise ways and methods of expanding the usefulnesss to the public
of both.
5. To seek means of protecting the public against practice in these respec-
tive fields by persons not qualified to serve the public. 85
Then the committee set about the difficult task of drawing up
a declaration of principles which would serve as a guide for the
conduct of the two professions in their relations with the public.
Certain fundamental principles were recognized immediately. The
lawyers who were members of the conference conceded that where
an income tax return simply required the setting down of factual
data from the income statement of a corporation, a C.P.A. was
qualified to prepare it. On the other hand, the accountant members
of the group conceded that they were not qualified to prepare legal
documents such as articles of incorporation, contracts, deeds, wills.
Then, on September 10, 1944, the following agreement was placed
Whereas, Lawyers and Certified Public Accountants are trained professional
men, licensed by the several states, and required to bring to their public service
qualifications both as to competency and character; and
Whereas, The American Bar Association and the American Institute of Ac-
countants have adopted codes of ethics to assume high standards of practice in
both professions;
Be it Resolved, In the opinion of the National Conference of Lawyers and
Certified Public Accountants
l.That the public will be best served if tax returns are prepared either by
certified public accountants or lawyers.
2. That it is in the public interest for lawyers to recommend the employment
of certified public accountants and for certified accountants to recommend the
employment of lawyers in any matter where the services of either would be
helpful to the client; and that neither profession should assume to perform
the functions of the other.
3. That certified public accountants should not prepare legal documents,
such as articles of incorporation, corporate by-laws, contracts, deeds, trust agree-
'Lawyers and Accountants," The Journal of Accountancy, LXXVII (June, 1944), 512.
Public Accounting in the United States— 1928-1949 191
ments, wills, and similar documents. Where, in connection with such docu-
ments, questions of accountancy are involved or may result, it is advisable
that certified public accountants be consulted. 86
Although the National Conference of Lawyers and Certified Pub-
lic Accountants and the local organizations seemed to be making
progress toward reconciling the problem, the following series of
rather significant events occurred that have thrown the conflict once
more into an area of combat:
1. The Bercu case
2. The Administrative Practitioners Bill
3. The introduction of HR 3214— which would make the Tax Court a court
of record.
These events are discussed in detail below.
The Bercu Case
Bernard Bercu was a certified public accountant in New York
City and a member of the New York State Society. In 1943 he pre-
pared a memorandum regarding the deductibility, in the federal
income tax return of the Craft Streets Products Company, Inc., for
that year, of additional sales taxes for the years 1935, 1936, and 1937,
the liability for which was in dispute. Settlement with the City of
New York was reached in 1943, and payment of these taxes in the
sum of $12,000 dollars was made in that year. Bernard Bercu ex-
pressed the opinion that under a Treasury ruling they were properly
deductible in 1943, in which year the Craft Company had a sub-
stantial profit and was in the excess-profits-tax bracket. The com-
pany's accountant, who was also a lawyer, had previously advised
that they could only be deducted in the earlier years to which they
applied, in which years there had been losses and no benefit would
be obtained. Mr. Bercu did not prepare the income tax return
soDavid F. Maxwell and William Charles, "The National Conference of Lawyers and Certified Public
Accountants," The Journal of Accountancy , LXXXI (February, 1946), 124.
192 History of Public Accounting
for the Craft Company and was not the company's regular ac-
countant. 87
On December 31, 1943, Mr. Bercu submitted a bill for services
rendered in the amount of $500, which was not paid, and he sued
for collection. The Municipal Court dismissed the case on motion of
the defense counsel to the effect that Bercu had been engaged in the
unlawful practice of the law. Bercu started an appeal but discon-
tinued it because of the expense involved. The New York County
Lawyers' Association thereupon petitioned the Supreme Court of
New York to punish Bercu for contempt and to enjoin him from the
further unlawful practice of the law. At this point the New York
State Society of Certified Public Accountants joined in the defense
of Bercu and was assisted by the American Institute of Accountants.
Hearings were held on March 18, 1947. Excerpts from the decision
follow:
. . . the advice which the respondent Bercu gave in this case was based upon
a ruling of the Income Tax Unit of the Treasury Department. This is an ad-
ministrative ruling which does not even bind the Department, much less the
courts. The Department promulgating these rulings is staffed principally by
accountants. Bercu undoubtedly knew this and treated the ruling as amounting
to what was considered by accountants to be sound accounting practice
Perhaps the entire subject of unlawful practice of law in this state should
be studied by a legislative commission or by the existing Law Revision Com-
mission. The problem, as has been indicated, is essentially one for the legis-
lature and not for the courts.
The motion is accordingly disposed of as follows: In so far as it seeks injunc-
tive relief, it is dismissed for noncompliance with the provision of article 75-a
of the Civil Practice Act; in so far as it seeks to punish for contempt, it is denied
and the proceeding dismissed on the merits. Settle order. 88
The case was then appealed to the New York Appellate Court of
the State of New York. In February, 1948, this court reversed the
decision handed down by the state Supreme Court. They ruled
as follows:
87 Percival F. Brundage, "The Bercu Case," The New York Certified Accountant, XVII (May
1947), 278.
88 "Official Decisions and Releases — Text of the Bercu Case," The Journal of Accountancy, LXXXIII
(April, 1947), 348.
Public Accounting in the United States— 1928-1949 193
. . . When, however, a taxpayer is confronted with a tax question so involved
and difficult that it must go beyond its regular accountant and seek outside tax
law advice, the consideration of convenience and economy in favor of letting
its accountant handle the matter no longer apply, and consideration of public
protection requires that such advice be sought from a qualified lawyer. At that
point, at least, the lines must be drawn. The line does not impinge upon any
of the business or public interests which respondent cites or oust the account-
ant from the tax field or prejudice him in any way in the pursuit of his pro-
fession or create any monopoly in the tax field in favor of the legal profession.
It allows the accountant maximum freedom of action within the field which
might be called "tax accounting" and is the minimum of control necessary to
give the public protection when it seeks advice as to tax law.
The order appealed from should be reversed, respondent adjudged in con-
tempt and fined $50 and an injunction as prayed for issued. 89
This case was not yet settled even with this decision. It was ap-
pealed to the Court of Appeals of the State of New York. That court,
the highest in the state, on July 19, 1949, affirmed unanimously,
without opinion, the appelllate division's decision against Mr.
Bercu. 90
This first major case on the practice of law by accountants is high-
ly significant for several reasons. First, it had been generally assumed
that questions such as the deductibility of proposed expenditures
for tax purposes were matters of tax accounting, on which certified
public accountants were fully qualified to advise. Second, the case
will ultimately have an effect on the development of public ac-
counting practice in the United States.
The Administrative Practitioners Bill
HR 2657, the Administrative Practitioners Bill, was sponsored by
the American Bar Association and introduced in the United States
House of Representatives on March 20, 1947. The bill provided
(1) for a single national register of all practitioners admitted to
practice before administrative agencies and (2) for the creation of
a Credentials Committee to pass on all persons desiring to practice
^"Official Decision and Releases — Lawyers' View of Accountants' Practice before Tax Court," The
Journal of Accountancy, LXXXV (May, 1948), 434.
"'Editorial, "Bercu Case on Tax Practice Upheld in New York Court of Appeals," The Journal o)
Accountancy, LXXXVIII (August, 1949), 93.
194 History of Public Accounting
before such agencies. The Committee was authorized to issue
credentials to nonlawyers certified by the appropriate agency as
qualified technically and legally, and found by the committee to
meet ethical and moral requirements. 91
The Administrative Procedure Act of 1946, which was endorsed
by the American Bar Association, the American Institute of Ac-
countants, and the National Conference of Accountants and Certi-
fied Public Accountants, provided that persons other than lawyers
may appear before the administrative agencies. The Institute op-
posed HR 2657 on the grounds that the creation of the Credentials
Committee would involve additional expense and might create a
lawyers' monopoly of practice before administrative agencies of
the federal government. Accordingly, the Institute filed with the
Judiciary Committee of the House a statement opposing the provi-
sions of the bill, and urging an amendment instead. The Institute
recommended that a simple bill be devised which would admit all
lawyers to practice before administrative agencies and let each in-
dividual agency set up its own rules about who else should be ad-
mitted to practice. The Institute felt that the original bill as it
stood would involve considerable expense and duplication. More-
over, nonlawyers would be put into a precarious position since they
could practice before administrative agencies only with the approval
of the Credentials Committee, which would be composed of five
members, four of them lawyers. The Institute in its statement to
Congress urging amendments to the bill stated that an enormous
amount of informal practice is now conducted before the agencies
at which the presence of lawyers is often unnecessary and unde-
sirable. 92
The bill was opposed by the Treasury Department and almost
all other important government agencies on the ground that it
would prevent nonlawyers from appearing in proceedings in which
a record is made which might be the subject of judicial review. 93
The American Bar Association stated that the bill was designed
"to protect the public with respect to practitioners before admin-
91 "Practice before Government Agencies," Official Decisions and Releases, The Journal of Accountancy,
LXXXVIII (June, 1947), 535.
92 Louis Goldberg, "A Plague on Both Their Houses: The Accountant-Lawyer Difference over Tax
Practice," The Journal of Accountancy, LXXXIV (September, 1947), 188.
83 Editorial, "Lawyers Testify on Administrative Practitioners Bill," The Journal of Accountancy,
LXXXIV (September, 1947), 178.
Public Accounting in the United States— 1928-1949 195
istrative agencies." The Bar Association reacted violently to the
proposed amendment by the Institute and referred to the account-
ants' brief as a "masterpiece of innuendoes, specious pleas, irrele-
vancies, and evasions of the esssential issue." 94 Mr. John D. Ran-
dall, chairman of the Unauthorized Practice of Law Committee
of the Bar Association, in his testimony before the Judiciary Com-
mittee on the bill, explained that lawyers have certain disabilities
according to their code of ethics which nonlawyers who practice
before agencies would not have. He also pointed out that lawyers
are required to submit to intensive training, and it would not be
logical to allow nonlawyers to practice on the same basis. He stated
further that nonlawyers would be permitted in minor cases which
did not call for judicial review and that the Credentials Committee
was created only to pass on character and repute and not on other
qualifications. 95
Mathis F. Correa, counsel of the New York State Society of Cer-
tified Public Accountants, presented the Society's objections to the
bill. He described it as monopolistic and discriminatory and stated
further that there had been no showing of public necessity for regu-
lation of nonlawyers before federal agencies. 96 This bill has not
yet passed the House.
HR 3214— Tax Court of Appeals a Court of Record
HR 3214, which would make the Tax Court of Appeals a court
of record, was passed by the House on July 7, 1947, with an amend-
ment providing that no qualified person be denied the right to prac-
tice before the court. 97
The Tax Court of Appeals does not consider certified public
accountants as engaged in the practice of law even though they
are permitted to practice before the court. The court recognizes
certified public accountants as especially qualified to appear before
9 *Louis Goldberg, "A Plague on Both Their Houses: The Accountant-Lawyer Difference over Tax
Practice," The Journal of Accountancy, LXXXIV (September, 1947), 195.
»5"Testimony on Administrative Practitioners Bill," Official Decisions and Releases, The Journal oj
Accountancy, LXXXIV (September, 1947), 261.
^"Accounting Organizations Oppose Administrative Practitioners Bill," The Journal oj Accountancy,
LXXV (March, 1948), 187.
97 Editorial, "House Passes Bill Making Tax Court a Court of Record," The Journal of Accountancy,
LXXXIV (September, 1947), 180.
196 History of Public Accounting
the court. Since they are not familiar with the rules of procedure
of the court, the accountants are required to pass an examination. 98
The main objection to the bill, as presented by nonlawyers, was
that cases could not be handled as informally and expeditiously as
they had been in the past. Several cases recognized the Tax Court
as an administrative agency and not as a court. Members of the legal
profession contended that in 1942, when the name of the United
States Board of Tax Appeals was changed to the United States Tax
Court, it was intended that the Court should function as a judicial
body and not as an administrative agency."
In spite of these and other developments that have heightened
the conflict between the accountant and the lawyer, the outlook for
the future is brightened considerably by the growing realization on
the part of members of the bar that it is desirable and necessary to
cooperate with accountants. This is evident in the 1951 statement of
principles, mentioned earlier in this section, of the National Con-
ference of Lawyers and Certified Public Accountants.
More and more, both professions are realizing that the best cri-
terion in every case is to ascertain which profession can best serve
the interests of the client, and that for most cases the best results can
be reached by a proper combination of legal and accounting services.
With more and more of the law schools of the country offering
courses in accounting and taxation and business schools offering
courses in law, there should develop a better understanding on
the part of both groups.
National Firms and Their Continued Spread
The firm of Lybrand, Ross Brothers and Montgomery continued
to expand throughout the United States. They opened offices in
Rockford (Illinois) in 1929, in St. Louis, Atlanta, and Dallas in
1930, and in Houston and Louisville in 1931. 100
The decade beginning with 1930 was one of remarkable growth
and expansion in the practice of Arthur Andersen and Company.
98 William P. Jordan, "Accountancy and Law," The Journal of Accountancy, LXXXIII (February,
1947), 161.
""Debate on HR 3214 Making Tax Court a Court of Record," Official Decisions and Releases, The
Journal of Accountancy, LXXXIV (September, 1947), 249.
100 William M. Lybrand, Adam A. Ross, T. Edward Ross, and Robert H. Montgomery, Fiftieth
Anniversary (New York: privately printed, 1948), p. 12.
Public Accounting in the United States— 1928-1949 197
The Detroit office was opened in 1930, and the Houston office in
1937. Others were opened as follows: Minneapolis in 1940; St. Louis
and Seattle in 1943; Cleveland and Philadelphia in 1946; and
Dallas and Omaha in 1951.
The very rapid opening of offices continued for Ernst and Ernst.
During 1929, offices were opened in Portland (Maine), Birmingham
(Alabama) , and Reading (Pennsylvania) . Then, in 1948, offices
were opened in Salt Lake City; in 1949, in Portland (Oregon), Des
Moines, and Colorado Springs; in 1950, in Lancaster (Pennsyl-
vania) , Decatur (Alabama) , Oakland (California) , and Columbus
(Georgia) ; Lansing and Spokane in 1951, and finally in Worcester
(Massachusetts) in 1952. 101
Price, Waterhouse and Company opened offices in Houston in
1938 and in New Orleans in 1943.
This information is given again to illustrate the expansion of the
public accounting profession. The growth of selected firms can give
the reader an idea of the continued growth of the profession
throughout the United States.
SUMMARY
The responsibility of the public accounting profession has been
extended by the re-emphasis on auditing occasioned by the enact-
ment of the securities acts and the regulations of the Securities and
Exchange Commission.
The public accounting professsion, with the merger of the Amer-
ican Society of Certified Public Accountants and the American Insti-
tute of Accountants, seems finally to have achieved unity. Aside from
the influence of the federal government in the field of auditing,
the national professional organization itself has defined and elabor-
ated the generally accepted auditing procedures. The Institute's
Committee on Audit Procedures and its Committee on Accounting
Procedures have become established as the authority on matters of
public accounting theory and practice.
The continued acceptance of certified public accountants as
qualified to practice before the Treasury reflects the recognition
given the profession by the government. The friction between the
101 Letter from J. A. Lindquist, Partner in Ernst and Ernst, to James D. Edwards, dated May 21,
19S2.
198 History of Public Accounting
legal profession and certified public accountants has not been allev-
iated, although the National Conference of Lawyers and Certified
Public Accountants has established rules under which accountants
continue to do tax practice.
World War II resulted in new demands on the accounting pro-
fession which it met with notable success. Cost-plus contracts, re-
negotiation, and contract termination all called for skilled account-
ing work. The profession undertook this work and also played an
important part in the formation of the policy of the government
in regard to these matters.
Many of the new responsibilities assumed by the profession have
not yet developed to a stage where their full implications can be
determined.
CHAPTER VIII
Public Accounting in the United States
During the 1950's
In the decade of the 1950's the public accounting profession had
to face some of the problems of a profession coming of age. The
primary cause of the problems was the rapidity with which the in-
dependent certified public accountant's role in the business com-
munity was becoming recognized. His services now extended beyond
the expression of the auditor's opinion on the financial condition of
a business enterprise, and touched increasingly on income, estate,
and gift tax matters, and the rapidly growing management services
field. The extension of the functions performed by the certified
public accountant brought about additional tensions with other
professional groups concerned with federal income tax practices.
The tax practice conflict extended from New York State, with its
Bercu case, to California, with its Agron case.
The influence of the Securities and Exchange Commission since
1933 was evident in the several suspensions of public accounting
firms from practicing before it. Some of these cases will be cited in
this chapter. In addition, the development of some of the American
Institute committees will also be discussed. These activities are
in the areas of professional development, theory, auditing, and
ethics.
Not all the events discussed in this chapter have had their full
impact on the public accounting profession. Still in process of
growth and change are professional curricula in colleges and univer-
sities, and the continuing education activities of the American In-
stitute of Certified Public Accountants. The long-standing question
of the relationship of the C.P.A. with noncertified public account-
ants remains unresolved, and the Accounting Principles Board's im-
pact is yet to be felt. Since it is too early to make final evaluation
of many of these events, the chapter's structure is almost entirely
chronological.
200 History of Public Accounting
Incidents of the Decade
Expanding Field of Auditing
The primary responsibility of an auditor (C.P.A.) today is the
expression of an informed and responsible opinion on whether
financial statements fairly present the financial position and oper-
ations of a business enterprise.
Until recently, independent audits were confined chiefly to non-
regulated, privately owned, profit-making businesses. Within the
last decade there has been rapidly growing recognition of the value
of independent auditors' opinions on financial statements in many
other segments of the economy.
During 1956 and 1957 the American Institute of Certified Public
Accountants established or re-established four committees to deal
with the expanding areas of service of the independent auditor.
These committees were concerned with relations with bankers,
(originally appointed in 1923) accounting for non-profit organi-
zations, the special problems of audits of insurance companies, and
(at the suggestion of a vice president of the New York Stock Ex-
change) relations with the Interstate Commerce Commission. These
committee appointments and their subsequent activities are just a
few major examples of the growing acceptance of responsibility and
accountability in all segments of American society. The new Amer-
ican Institute committees have the challenging task of opening up
large new areas where C.P.A. 's have been only occasionally used
before. 1
AFL-CIO and Independent Audits
In 1957, the AFL-CIO Council adopted a code calling for vir-
tually all affiliated unions to have independent audits. The stip-
ulation reads as follows:
At least annually, an audit of the accounts of each affiliate, except directly
affiliated local unions of the AFL-CIO, should be made by independent certi-
fied public accountants. A summary of such audit approved by such independ-
^ditorial, "Expanding Fields for Auditing." The Journal of Accountancy, CIV (July, 1957), 23.
Public Accounting in the United States During 1950's 201
ent certified accountants should be available to the membership of the affiliate
and to the public. 2
Committee on Relations with I.C.C.
The committee on relations with the Interstate Commerce Com-
mission was charged with studying the difference between railroad
accounting and accounting for other industries. The committee
members were Arthur J. Abbott, William R. Blew, Nels C. Nelson,
Russell D. Tipton and Howard D. Murphy, Chairman. 3 Phillip L.
West, vice president of the New York Stock Exchange, had sug-
gested the establishment of such a committee in a letter of May
17, 1956, to Anthony F. Arperia, Interstate Commerce Commission
Chairman. The function of such a committee should be:
to bring railroad accounting into agreement with generally accepted accounting
principles and to have the opinions of independent public accountants in-
cluded in reports to stockholders of railroad companies conform to the practice
followed in all other industries. 4
Mr. West stated that a study of railroad accounting practices was
needed to determine whether they might be brought into con-
formity with generally accepted accounting principles so that the
opinions of independent certified public accountants, as published
on railroad company annual reports, can then affirm that the ac-
counts are in accordance with those principles. At that time, the
opinions of independent accountants usually state that the reports
conform with Interstate Commerce Commission accounting re-
quirements.
In the railroad industry, the system of accounts promulgated by
the I.C.C. in 1907 was in many respects superior to general practice
2 Official Releases, "AFL-CIO Code of Union Financial Practice— Official Text," The Journal of Ac-
countancy, CIV (July, 1957), 54.
3 News Report, "Railroad Accounting Committee," The Journal of Accountancy, CII (August, 1956), 7.
^Editorial, "Railroad Accounting," The Journal of Accountancy, CIII (May, 1957), 25.
202 History of Public Accounting
at the time. Unfortunately, because of the resistance to change that
is inherent in the nature of a governmental agency, the accounting
regulations of the I.C.C. have not been revised sufficiently to keep
pace with the subsequent improvements in accounting adopted by
most unregulated businesses. The major problem lay in the fact
that income and results of financial operations have not been re-
ported on a basis comparable with the income of most other public
corporations.
Report of the Committee
In its report to the Interstate Commerce Commission, the Com-
mittee listed six main variations between present railroad account-
ing practice and generally accepted accounting principles. In brief,
the committee covered the following areas:
1. Charging of items to retained income account instead of to income.
2. Charging current income with such items as sinking funds which are not
customarily charged to income.
8. Treating all income tax accruals and adjustments as railway operating
expenses instead of allocating them where appropriate to other accounts
or other years.
4. Failure to identify and segregate items in the acquisition adjustment
account, and provide for their disposal when that should be done.
5. Failure to list long-term debt maturing within one year as a current
liability.
6. Showing outstanding voucher drafts as liabilities rather than reductions
in cash. 5
Railroad Accounting Incident
On February 13, 1957, an article in The Wall Street Journal
reported a speech given the previous day to the Milwaukee Control
5 Editorial, "Railroad Accounting," The Journal of Accountancy, CIII (May, 1957), 26.
Public Accounting in the United States During 1950's 203
of the Controllers' Institute of America, entitled "Professional Ac-
countants and Their Public Responsibility." The speech was given
by Leonard Spacek, partner, Arthur Andersen & Co., Certified Pub-
lic Accountants; it took sharp issue with accounting procedures for
railroads prescribed by the I.C.C. Mr. Spacek alleged that diver-
gencies between I.C.C. railroad accounting procedures and gener-
ally accepted accounting principles result in overstatement of cur-
rent income and inaccurate property accounting. He further stated
that these divergencies are of such magnitude that the investing
public, which deserved protection from the I.C.C, was being led
to a "shearing." 6
The Journal of Accountancy reported as follows:
In his speech, Mr. Spacek criticized the use of replacement accounting for
railroad-track structures. Replacement accounting requires that most of the
costs of new rails and ties be charged as expense items rather than being set up
as capital assets with regular depreciation charges as would be required if
generally accepted accounting principles were followed. Spacek attacked the
reliability of railroad current income statements which he said reflect tax re-
funds and tax credits from other years (adherence to generally accepted ac-
counting principles would require that tax adjustments for prior years be made
through the surplus account rather than be shown as current income) . He also
said that railroads do not charge current income with tax deferrals resulting
from rapid amortization of emergency facilities purchased under the provisions
of Section 168 of the Internal Revenue Code of 1954 (or Section 124A of the
1939 Internal Revenue Code) . As a result, he alleged, current income is further
overstated because of the payment of unusually low taxes due to rapid tax
amortization. He also stated future income will be deflated when the taxes
deferred as a result of the tax amortization are paid, because no reserve for
deferred taxes is prescribed under I.C.C. accounting procedures. 7
Furthermore, in regard to the report of the Committee on Rela-
tions with the Interstate Commerce Commission, the Journal stated:
Mr. Spacek charged interference with the inquiry by some railroad officials and
some members of the A.I.A. Committee. He said that the railroads had told the
e Official Releases, "Railroad Accounting Procedures," The Journal of Accountancy, CIV (November,
1957), 69.
nbid., p. 69.
204 History of Public Accounting
A.I.A. Committee to make sure that "no recommendations are made which
would affect the railroad companies adversely from the standpoint of regulation
or income taxes." 8
There was an American Institute Committee appointed to in-
vestigate the charge by Mr. Spacek, which was "not sustained."
Shortly after the speech, and after staff study of the issues, a sub-
committee held informal conferences with Spacek and with repre-
sentatives of the I.C.C. On March 5, 1957, the subcommittee met
with Mr. Spacek. On March 7, after a transcript of his views was
made available to the I.C.C, the subcommittee of the American
Institute met with the chairman and staff representatives of the
Commission. Public hearings on railroad accounting procedures
prescribed by the I.C.C, with particular emphasis on the divergen-
cies from generally accepted accounting principles, began on April
3, 1957, and ended on May 3, 1957.
On March 28, 1957, the report of the American Institute's Com-
mittee on Relations with the I.C.C. was forwarded to the chairman
of the I.C.C
Attached to the report, in addition to one member's dissent
(principally with respect to "betterment of accounting"), was a
memorandum setting forth details of each of the six variations be-
tween present railroad accounting and generally accepted principles.
The Official Release of the Journal stated further:
Some measure of the intensity of differences among accountants on railroad
accounting procedures is evidenced by the resignation from the A.I.A. by the
dissenting committee member, and in the investigating of Mr. Spacek's charges
by the American Institute of Accountants, as a result of his public criticism of
the A.I.A. committee on relations with the Interstate Commerce Commission. 9
Arthur Andersen & Co. and Rule 5(e)
In reporting on the financial statements of railroads, most public
accounting firms generally have certified to the effect that the state-
s Ibid., p. 69.
eibid., p. 72.
Public Accounting in the United States During 1950's 205
ments present fairly the financial position and results of operations
in conformity with accounting principles and practices prescribed
or authorized by the Interstate Commerce Commission, without
making any reference in their certificates to conformity with gen-
erally accepted accounting principles.
The firm of Arthur Andersen & Co. questioned whether this form
of auditor's certificate is acceptable under Rule 5 (e) of the Rules of
Professional Conduct of the American Institute of Certified Public
Accountants, since it does not say whether the financial statements
are in conformity with generally accepted accounting principles.
Rule 5 (e) reads, in part, as follows:
(5) In expressing an opinion on representations in financial statements which
he has examined, a member may be guilty of an act discreditable to the pro-
fession if . . . (e) he fails to direct attention to any material departure from
generally accepted accounting principles. . . . 10
On July 1, 1959, the firm stated that in two important areas the
accounting prescribed by I.C.C. and followed by the railroads fails
to conform to generally accepted accounting principles:
(1) The railroads are not permitted to defer the current income-tax reductions
resulting from the use of accelerated depreciation for tax purposes in excess of
the depreciation recorded in the accounts. Under generally accepted accounting
principles (ARB No. 44, Revised) , such tax reduction should be deferred as
reserves for the increased income taxes that will be payable in the future when
the depreciation deductible for tax purposes falls below that recorded in the
accounts.
(2) That railroads are required to use replacement accounting for track prop-
erty. This requires that the replacement expenditures be charged to operating
expense. This practice is not in accordance with generally accepted accounting
principles, which require the capitalization of such expenditures, the concur-
rent retirement of property removed from service, and the depreciation of the
cost of new property over its useful life. 11
10 Russell Morrison, George R. Catlett, "Inquiry Regarding Compliance of Auditors' Certificate on
Financial Statements of Railroad with Rule 5(e) of the Rules of Professional Conduct of the American
Institute of Certified Public Accountants," Arthur Andersen & Co., 1959, p. 1.
™Ibid., p. 2.
206 History of Public Accounting
Leonard Spacek wrote a letter of inquiry, dated July 29, 1958,
to the members of the American Institute Committee on Profes-
sional Ethics, pointing out several auditors' certificates of railroad
companies which were not qualified, while the Arthur Andersen &
Co. certificate was qualified. Mr. Spacek asked whether, in the opin-
ion of the committee, the certificates were in conflict with Rule
5(e).
On March 23, 1959, the Chairman of the American Institute
Committee on Professional Ethics, Thomas G. Higgins, wrote in
his reply that the committee's opinion was that an auditors' cer-
tificate stating the financial statements of a railroad are in conform-
ity with accounting principles and practices prescribed or auth-
orized by the Interstate Commerce Commission is permissible
under Rule 5 (e) .
The Ethics Committee's two main reasons for this conclusion were
briefly as follows:
(1) [There is] strong presumption that the accounting prescribed by the
I.C.C. constitutes generally accepted accounting principles in that industry.
(2) The Institute's Auditing Procedure Committee has not spoken specifi-
cally on the reports on railroads or other regulated companies. In the absence
of some authoritative statement by the committee prescribing the standards
for what has been concluded is a special reporting problem, the validity of
any reporting practice must rest on general use and general acceptance. The
practice of reporting on railroad financial statements in terms of accounting
principles prescribed or authorized by the Interstate Commerce Commission
appears to be widespread. 12
The inquiry of Mr. Spacek to the Ethics Committee was handled
as a complaint, rather than a question regarding compliance of sev-
eral railroad certificates with Rule 5 (e) .
Management Services by CP.A.'s
A significant development in the practice of the public account-
ing profession, which reached full bloom in the decade of the 1950's,
was the growth in the management services field. This expansion
**Ibid., p. 4.
Public Accounting in the United States During 1950's
207
of the audit function had started during World War I, when Arthur
Young & Co. was asked to work for the British government on a
contract with the Remington Company. Many other public account-
ing firms have performed some services of this type regularly for many
years. Though this does not represent a new field for C.P.A.'s, the
American Institute Committee on Management Services has come
to feel that the activity now warrants separate recognition and treat-
ment by the profession; accordingly, in 1957 it issued a pamphlet
dealing with possible services that C.P.A.'s could perform, rather
than areas that they should or should not serve.
The members of the Committee on Management Services by
C.P.A.'s at the time the pamphlet was issued were:
Roger Wellington, Chairman
Carroll W. Cheek
Warren B. Cutting
Henry J. Harder
Joseph J. Hartnett
Ralph F. Lewis
Arthur F. Morton
Lawrence P. Quill
Louis A. Ryan
Willard E. Slater
Mark C. Walker
Carman G. Blough, Director of
Research
The committee set forth the meaning of the term management
services as follows:
1. It refers to services that are being rendered by an appreciable number
of CPAs to business management in addition to the conventional or traditional
services rendered by a public accountant.
2. The traditional services offered by CPAs include auditing, tax service,
preparation of financial statements of various types and advice on matters of
accounting principle or treatment. These are, in the broad sense, services to
management but they are excluded from the extensions of service to which
the term management services refers. Some services, such as accounting systems
work, may be a "traditional service" for some practitioners and a "manage-
ment service" for others. The line of distinction between the traditional
services and management services cannot be sharply drawn, and it is not im-
portant to do so as long as there is an understanding of the general nature
of the term.
3. The term "management services" includes, but is not restricted to, assist-
ing the client in problems of managerial accounting, e.g., reporting, budget-
208 History of Public Accounting
ing, cost accounting and cost analysis, and operating cost control. It also in-
cludes the problems of office operation and office equipment.
4. It includes services which CPAs are asked to perform primarily because
of existing confidence in individuals and firms, and because of the reputation
which the profession in general has for integrity and independence. Examples
are: acting as arbitrator, and accumulating statistics for a trade association.
5. It includes various kinds of services performed for clients in conjunction
with other expert advisers, such as attorneys, investment bankers, insurance
counselors and industrial engineers.
6. Management services by CPAs tend "to originate in connection with
accounting records and problems, but often lead into areas which are related
to the problem under consideration but not directly related to accounting.
The internal use of accounting is only one part of overall business manage-
ment, and well-rounded advice to management must consider all aspects of
the management task. The services, then, may often appear to be unrelated to
accounting, especially where the CPA and his staff members have had experi-
ence and training in other fields of business and management. 13
The qualifications of the C.P.A. for management services are
based in part upon his training for professional accounting and his
analytical approach to his clients' problems, but to a larger degree
upon his experience in observing and working with the problems of
his clients. The intimate knowledge thus gained enables him to
offer useful counsel and guidance on various phases of business
problems.
In the area of qualifications and standards of performance the
Committee on Management Services emphasized that a C.P.A.
should make sure that he is clearly qualified to render a particular
service before he offers it to his clients. Further, in extending the
scope of the C.P.A.'s services to his audit clients, the accountant
will not jeopardize his position as an independent auditor. The
management services are performed on behalf of management with-
out responsibility to third parties and therefore the concept of
independence is somewhat different than that applicable to auditing.
The areas of management services by C.P.A.'s were classified
according to major functions of business management. The examples
were intended to be illustrative, to suggest possibilities and to stim-
ls Committee on Management Services by CPAs, "Management Services by CPAs," (New York:
American Institute of Certified Public Accountants, 1957), p. 6.
Public Accounting in the United States During 1950's 209
ulate interest, but not to constitute a check list of the areas within
which any C.P.A. should be qualified to render service. The com-
mittee's list is as follows:
I General Management
General Management: objectives and policies
Organization
Management controls: system of internal reporting; cost and
expense controls; budgetary control
Special investigations: purchase or sale of business
II Finance
Financial structure: types and sources of capital or financing
Financial requirements: short and long term needs
Financial policies: retention or distribution of earnings; credit
and collection
Financial planning: forecasting; operating budgets; cash bud-
gets; capital budgets
Insurance: coverage; records
Cost accounting: systems; standards; principles and procedures
Pensions and profit sharing
Government contracts: cost, renegotiation or redetermination
III Production
Plant and equipment: economic justification; depreciation
and obsolescence
Production standards
Production control: records and statistics; inventory control
Material control
IV Sales
Distribution and merchandizing: distribution costs and
statistics
Sales management: pricing; sales results
V Office Management
Systems and records: accounting systems; forms and records;
data processing
Office equipment
Office layout and space utilization
Office organization
Office personnel: workloads and standards; evaluation
210 History of Public Accounting
VI Purchasing
Purchasing procedures
Inventory control
VII Traffic and Transportation
Transportation equipment: operating costs
VIII Personnel
Recruitment or interview: office personnel
Training: accounting personnel
Job classification and evaluation
Compensation: types of work; wage incentives; profit sharing
distributions
Employee benefit programs 14
Bulletins on Management Services
Several studies followed the policy statement of the Committee
on Management Services by C.P.A.'s. The bulletins were published
by the American Institute to help professional accountants expand
their management services to small business clients. The first series
of studies reviewed principles and techniques in the areas of finance
and control and included descriptions of actual services performed.
The materials should prove extremely useful to every practitioner
as well as to the business executive who may have responsibility in
the areas covered. Series I of the Management Services by C.P.A.'s
contained the following studies:
1 . The Concept of Management Services
2. Budgeting For Profit in Small Business
3. Financing the Small Business
4. Cost Reduction and Cost Control
5. Office Management
The function already filled by certified public accountants in the
area of management services will continue to grow in importance.
New National and International Offices
The national public accounting firms continued to open offices
in the various business centers throughout the United States. The
^Ibid., p. 10.
Public Accounting in the United States During 1950 's 211
certified public accountant's general acceptability in the business
world and his desire to render service to his clients gave great im-
petus to the national and international growth. The fact that Ameri-
can business operations spread into many international markets
with large investments of capital contributed to the international
recognition of the certified public accountant.
The editor of The Journal of Accountancy felt that the continued
changes in the constitution of some well-known firms merited re-
porting. One of the major developments in mergers of firms came
on November 21, 1950 when Peat, Marwick, Mitchell & Co. merged
with Barrow, Wade, Guthrie & Co. under the former's name. In
another such step, McLaren, Goode & Co. with headquarters in San
Francisco, merged with the New York firm of West, Flint & Co.
under the name of McLaren, Goode, West & Co.
In 1950, Arthur Young & Co. merged with two firms: Wideman,
Madden, Dolan & Co., of Toledo, and Lunsford, Barnes and Com-
pany, of Kansas City. 15
During the last decade, the firm of Arthur Andersen & Co. opened
ten additional offices in the United States and sixteen outside the
United States. 16 The United States offices were as follows:
Dallas, Texas
1951
Pittsburgh, Pennsylvania
1957
Omaha, Nebraska
1951
Charlotte, North Carolina
1958
Denver, Colorado
1956
New Orleans, Louisiana
1958
Cincinnati, Ohio
1957
Phoenix, Arizona
1958
Oklahoma City, Oklahoma
1957
Tulsa, Oklahoma
1958
The same firm's offices outside the United States which were
opened during the 1950's were:
San Juan, Puerto Rico 1956 Brussels, Belgium 1957
London, England 1957
15 Editorial, "Many Accounting Practices Have Been Merged in Recent Months," The Journal of
Accountancy, XCI (January, 1951), 68.
18 Letter from Paul D. Williams, Arthur Andersen & Co., to James D. Edwards, dated January 13,
1960.
212
History of Public Accounting
Milan, Italy
1957
Maracaibo
1958
Oslo, Norway
1957
Bogota, Colombia
1958
Brazil:
Buenos Aires, Argentina
1959
Rio De Janeiro
1957
Montevideo, Uruguay
1959
Santos
1957
Australia:
Sao Paulo
1957
Melbourne
1959
Venezuela:
Sydney
1959
Caracas
1958
Perth
1959
The new offices of Ernst & Ernst during the same period were as
follows: 17
Charlotte, North Carolina
May 1, 1958
Hartford, Connecticut
January 1, 1959
New Haven, Connecticut
May 1, 1958
Stamford, Connecticut
January 1, 1959
Winsted, Connecticut
May 1, 1958
Lancaster, Pennsylvania
January 1, 1950
Newark, New Jersey
May 1, 1955
Worcester, Massachusetts
May 1, 1952
Columbus, Georgia
June, 1951
Charleston, West Virginia
October 1, 1952
Athens, Alabama
July 1, 1959
Decatur, Alabama
February 1, 1950
Huntsville, Alabama
October, 1959
Mobile, Alabama
September 24, 1955
Knoxville, Tennessee
October 1, 1952
Nashville, Tennessee
August 1, 1956
Clarksville, Tennessee
August 1, 1956
Lebanon, Tennessee
August 1, 1956
McMinnville, Tennessee
August 1, 1956
Murfreesboro, Tennessee
August 1, 1956
Shelbyville, Tennessee
August 1, 1956
Sparta, Tennessee
August 1, 1956
Hopkinsville, Kentucky
August 1, 1956
Syracuse, New York
November 1, 1958
Lima, Ohio
August 1, 1958
Lansing, Michigan
September 5, 1951
"Letter from F. H. Hass, Partner in Ernst & Ernst & Ernst, to James Don Edwards, dated January
26, 1960.
Public Accounting in the United States During 1950's
213
Saginaw, Michigan
October 1, 1956
Port Huron, Michigan
July 1, 1958
Albuquerque, New Mexico
December 1, 1954
Terre Haute, Indiana
December 1, 1959
Evansville, Indiana
November 1, 1956
Oklahoma City, Oklahoma
December 1, 1957
Wichita, Kansas
May 1, 1956
Shreveport, Louisiana
October 1, 1958
Anchorage, Alaska
May 1, 1959
Boise, Idaho
September 28, 1954
Phoenix, Arizona
July 1, 1959
San Diego, California
July 1, 1957
San Jose, California
October 1, 1957
Sacramento, California
September 1, 1954
Oakland, California
December 1, 1950
Spokane, Washington
September 1, 1951
San Juan, Puerto Rico
May 1, 1952
At the time of the merger of Touche, Niven & Co., Allen R.
Smart & Co., and George Bailey & Company on September 1, 1947,
they had ten offices located in New York City, Cleveland, Pitts-
burgh, Detroit, Dayton, Chicago, St. Louis, Minneapolis, Los Angeles,_
and Seattle. The new firm name was Touche, Niven, Bailey &
Smart. Their other offices were opened in the following years: 18
Boston, Massachusetts 1948
Houston, Texas 1948
Milwaukee, Wisconsin 1948
San Francisco, California 1950
San Jose, California 1950
Kansas City, Kansas 1951
Grand Rapids, Michigan 1952
Portland, Oregon 1954
Modesto, California 1954
Rochester, New York 1954
Honolulu, Hawaii 1954
Dallas, Texas 1956
Washington, D. C. 1957
Atlanta, Georgia 1958
Philadelphia, Pennsylvania 1958
Denver, Colorado 1959
The firm of Lybrand, Ross Bros. & Montgomery opened offices
in five cities during the 1950's. They were as follows: 19
"Letter from Donald H. Cramer, Partner in Touche, Ross, Bailey & Smart, to James D. Edwards,
dated January 14, 1960.
"Letter from Frank P. Smith, Lybrand, Ross Bros. & Montgomery, to James D. Edwards, dated
January 22, 1960.
214
History of Public Accounting
Tulsa, Oklahoma
Birmingham, Alabama
Atlanta, Georgia
1952 Hartford, Connecticut
1953 Portland, Oregon
1953
1958
1959
The firms Touche, Niven, Bailey & Smart of the United States
of America, Ross, Touche & Co. of Canada, and George A. Touche
& Co. of the United Kingdom announced their affiliation in inter-
national public accounting practice and the change of their firm
names to Touche, Ross, Bailey & Smart effective January 1, 1960.
Offices of the new firm Touche, Ross, Bailey & Smart outside the
United States are as follows:
Canada:
Calgary
Edmonton
London
Montreal
Ottawa
Regina
St. John
Saskatoon
Toronto
Vancouver
Victoria
Winnipeg
United Kingdom:
Birmingham
Edinburgh
London
Belgium:
Brussels
France:
Paris
West Germany:
Berlin
Bielefeld
Bremen
Cologne
Diisseldorf
Frankfurt
Hamburg
Hanover
Liibeck
Munich
Nurnberg
Stuttgart
Mexico:
Mexico City
Barbados:
Bridgetown
Jamaica:
Kingston
Panama:
Panama City
Holland:
Almelo
Amsterdam
Breda
Rotterdam
The Hague
Switzerland:
Geneva
Puerto Rico:
San Juan
Australia:
Adelaide
Brisbane
Canberra
Public Accounting in the United States During 1950' s 215
Melbourne New Zealand:
Perth Auckland
Sydney Christchurch
Wellington
The flow of investment funds among the nations of the free
world has been at a high level since World War II. This movement
of capital has inevitably stimulated the requirement for world-wide
professional accounting and auditing services, performed on the
basis of reasonably uniform standards. In answer to this need the
firm of Lybrand, Ross Bros. & Montgomery announced the forma-
tion of the international firm of Coopers & Lybrand on January 2,
1957. The partners in the firm of Coopers & Lybrand were to con-
tinue to practice public accounting under their own names in the
United States, the United Kingdom, Canada, Mexico, and West
Germany. 20
The old American and English public accounting firm, Price,
Waterhouse & Co., opened new offices during the decade of the
1950's as follows: 21
Baltimore, Maryland Newark, New Jersey
Battle Creek, Michigan Peoria, Illinois
Beverly Hills, California Phoenix, Arizona
Columbus, Ohio Saginaw, Michigan
Denver, Colorado Santa Ana, California
Hartford, Connecticut Syracuse, New York
Kansas City, Missouri Toledo, Ohio
Knoxville, Tennessee Wheeling, West Virginia
Nashville, Tennessee
The new offices outside the United States during the 1950's were
as follows:
^Coopers & Lybrand, L. R. B. & M. Journal, published by Lybrand, Ross Bros. & Montgomery,
XXXIX (January - March, 1958), 1.
a Letter from E. V. Thompson, Partner, Price, Waterhouse & Co., to James D. Edwards, dated
February 8, 1960.
216
History of Public Accounting
Canada:
Edmonton
Halifax
Hamilton
Continental Europe:
Duesseldorf, Germany
Hamburg, Germany
Frankfurt am Main, Germany
Genoa, Italy
Barcelona, Spain
Geneva, Switzerland
Caribbean Area:
Ciudad Trujillo, R. D.
San Juan, P. R.
South America:
Cordoba, Argentina
Cochabamba, Bolivia
Belo Horizonte, Brazil
Porto Alegre, Brazil
Asuncion, Paraguay
Australia, New Zealand and Fiji:
Canberra
Geelong, Victoria
Hobart, Tasmania
Townsville, North Queensland
Fiji, Suva
Africa and Middle East:
South Africa
Durban
Central African Federation
Salisbury, Southern Rhodesia
North Africa
Algiers, Algeria
Cyprus
Nicosia
Ethiopia
Addis Ababa
Libya
Tripoli
Aden
Asia:
Pakistan
Chittagong, East Pakistan
Thailand
Bangkok
During the ten-year period Arthur Young & Company opened
offices in the following United States cities: 22
Detroit, Michigan
1950
Seattle, Washington
1956
Toledo, Ohio
1950
Washington, D. C.
1956
Wichita, Kansas
1950
Buffalo, New York
1957
Cleveland, Ohio
1951
St. Louis, Missouri
1957
Atlanta, Georgia
1952
Bluefield, West Virginia
1959
Denver, Colorado
1955
Newark, New Jersey
1959
Cincinnati, Ohio
1956
The firm of Arthur Young & Co. operates under its own name,
or through affiliations and associations with other firms, in foreign
countries as follows:
^Letter from L. S. Dunham, Arthur Young & Company, to James D. Edwards, dated January 21,
1960.
Public Accounting in the United States During 1950's
217
Australia:
Adelaide
Brisbane
Fremantle
Hosham
Melbourne
Perth
Sydney
Canada:
Calgary
Edmonton
Hamilton
London
Montreal
Regina
Toronto
Vancouver
Windsor
Winnipeg
Italy:
Genoa
Mexico:
Mexico City
Philippine Islands:
Cebu
Davao
Manila
Union of South Africa:
Cape Town
Johannesburg
Paarl
Southwest Africa:
Windhoek
Argentina:
Buenos Aires
Mendoza
Brazil:
Sao Paulo
France:
Paris
Germany:
Berlin
Diisseldorf
Frankfurt
Hamburg
Great Britain:
London
Chile:
Santiago
Colombia:
Bogota
Medellin
Uruguay:
Montevideo
Venezuela:
Caracas
Peat, Marwick, Mitchell & Co. opened United States and inter-
national offices as follows: 23
United States:
Cincinnati, Ohio 1950
Oklahoma City, Oklahoma 1950
Omaha, Nebraska 1950
San Jose, California 1950
Waterbury, Connecticut 1950
Billings, Montana 1951
Buffalo, New York 1951
Lincoln, Nebraska 1951
^Letter from Carl A. Newlin, Jr., Peat, Marwick, Mitchell & Co., to James D. Edwards, dated
February 18, 1960.
218
History of Public Accounting
Shreveport, Louisiana
1951
Costa Rica:
Columbus, Ohio
1951
San Jose
1958
Louisville, Kentucky
1954
Germany:
Nashville, Tennessee
1954
Berlin
1958
Richmond, Virginia
1954
Diisseldorf
1958
Cedar Rapids, Iowa
1955
Frankfurt am Main
1958
Des Moines, Iowa
1955
Hamburg
1958
Albuquerque, New Mexico
1956
Munich
1958
Hilo, Hawaii
1956
Holland:
Honolulu, Hawaii
1956
The Hague
1959
Lihue, Hawaii
1956
Italy:
Sante Fe, New Mexico
1956
Milan
1958
Kingman, Arizona
1957
Rome
1959
Phoenix, Arizona
1957
Jamaica:
Birmingham, Alabama
1958
Kingston
1958
Greenville, South Carolina
1958
Montego Bay
1958
Hartford, Connecticut
1958
Japan:
St. Paul, Minnesota
1958
Tokyo
1955
San Antonio, Texas
1958
Puerto Rico:
Fort Worth, Texas
1959
San Juan
1958
Kingston, New York
1959
Republic of Panama:
Troy, New York
iternational:
1959
Panama City
Switzerland:
1958
Bahamas:
Basle
1959
Nassau
1958
Lausanne
1959
Canada:
Zurich
1958
London, Ontario
1955
Venezuela:
Halifax, Nova Scotia
1959
Caracas
1958
Colombia:
Bogota
1955
Cali
1959
Regulatory Legislation and the American Institute
The official policy of the American Institute in regard to "reg-
ulatory" C.P.A. legislation was adopted by the Institute's Council
in April, 1956. This replaced the "neutral" position on regulatory
and permissive legislation which it had held for eight years.
Under the new policy the Institute will support state laws pro-
viding for the registration of all accountants in public practice,
either as C.P.A.'s or P.A.'s. After a cutoff date for registration of all
Public Accounting in the United States During 1950's
219
individuals already in practice, the right to practice as a public
accountant will be limited to those who pass the C.P.A. examina-
tion. 24
States With Regulatory Legislation
The states with regulatory public accounting laws are the fol-
lowing:
STATES WITH REGULATORY PUBLIC ACCOUNTING LAWS
Year of Enactment of
Year Law
Initial Accounting Law
Became
State
Regulatory
1.
*Alaska
1923
1949
2.
*Arizona
1919
1933, 1955
3.
California
1901
1945
4.
Colorado
1907
1937
5.
Connecticut
1907
1955
6.
Florida
1905
1927
7.
* Georgia
1908
1943
8.
Hawaii
1923
1955
9.
Illinois
1903
1927, 1943
10.
Iowa
1915
1929
11.
Kentucky
1916
1946
12.
Louisiana
1908
1924
13.
Maryland
1900
1924
14.
Michigan
1905
1925
15.
Mississippi
1920
1930
16.
Missouri
1909
1943
17.
Nebraska
1909
1957
18.
*New Mexico
1921
1947
19.
New York
1896
1959
20.
North Carolina
1913
1925
21.
*Ohio
1908
1959
22.
* Oregon
1913
1951
23.
*Tennessee
1913
1955
24.
Texas
1915
1945
25.
Utah
1907
1959
2 *News Report, "The Top News Stories of 1956," The Journal of Accountancy, CI (January, 1956),
220 History of Public Accounting
Year of Enactment
of
Year Law
Initial Accounting Law
Became
State
Regulatory
26.
*Vermont
1912
1928
27.
Virginia
1910
1949
28.
Washington
1903
1959
29.
West Virginia
1911
1935
30.
Wisconsin
1913
1945
31.
Puerto Rico
1927
1957
32.
Virgin Islands
1942
1953
*Law
provides for continuing registration of public accountants.
Note:
All other jurisdictions
have
accountancy laws of the
'permissive" type. 25
Public Accountants and the Institute's Legislative Policy
In the winter of 1959 there were forty-six state legislatures in
session and they were asked to consider many bills affecting public
accounting statutes. Some of the legislative proposals sponsored
by non-C.P.A.'s provided for the continuing and reopening of
registration in states where it has already been closed under reg-
ulatory legislation.
The American Institute's position is that no one benefits if
such proposals are enacted into law. The general public, business
executives, and government are then confronted forever with a
confusing array of accountants who, despite their different stand-
ards, are authorized to use similar titles and perform identical
services. Such a neglect of the public interest cannot in the long run
advance the interests of either Certified Public Accountants or
noncertified public accountants.
The proposed legislation in many states deserves serious attention
because it reflects a genuine fear on the part of public accountants
(noncertified) that C.P.A.'s want "to put them out of business."
Even if the C.P.A.'s wished to do this, constitutional guarantees
would protect the noncertified public accountants' right to con-
tinue practice.
The American Institute of Certified Public Accountants has in-
dicated its readiness to work with public accountants toward gradual
^Letter from Katherine Michaelsen, Librarian, American Institute of Certified Public Accountants, to
James D. Edwards, dated February 18, 1960.
Public Accounting in the United States During 1950's 221
unification of the accounting profession. The institute has offered
technical and educational assistance to the noncertified public ac-
countants.
Essentially, the policy of the American Institute on achieving pro-
fessional harmony would require legislation to accomplish the
following:
1. Public accountants would be entitled to register when the legislation is
enacted and would be permitted to perform all the accounting activities they
now perform. Their constitutional right to earn a livelihood in their chosen field
would not be infringed in any way.
2. Only public accountants and certified public accountants registered under
the law would be authorized to use professional titles and to sign financial
statements in a way that enhances their credibility in the eyes of "third parties."
3. Unregistered persons would still be permitted to render general accounting
and tax services under other titles. 26
The objective of this policy is to follow the pattern established
by other professions; it is reasonable to hope that ultimately there
will be only one class of professional accountants, all members of
which will have met the same standard of qualifications and will
be subject to the same ethical disciplines.
As the public accounting profession expands into new areas of
services, as business grows larger and more complex, demands on
the profession will require higher standards. A college or univer-
sity degree with a major in accounting will be expected of all who
enter the field of public accounting. The public interest will de-
mand that every practitioner demonstrate his competence by passing
a searching examination, and all professional public accountants will
be obliged to increase their technical knowledge and skills through-
out their working life by participating in continuing education
programs. In the future everyone entering the profession will want
to be a C.P.A. 27
Walter Gellhorn, Professor of Law at Columbia University, pre-
sented a salutary analysis of the whole regulatory-licensing situation
^Editorial, "Public Accountants and the Institute's Legislative Policy," The Journal of Accountancy,
CVII (January, 1959), 25.
™Ibid., p. 26.
222 History of Public Accounting
at the American Institute's 1959 annual meeting held in San Fran-
cisco. Recognizing the genuine need for protecting the public in the
regulation of the professions, he said:
Members of your profession as well as my own came under public superin-
tendence in one degree or another because, like physicians, they performed
highly responsible services of great moment to clients themselves unable, in most
instances, to judge the practitioners' qualifications; a test of those qualifications
was needed in advance, lest the client be destroyed in the process of appraising
his servitor. 28
At the same time, Professor Gellhorn is inclined to think that the
public is given sufficient protection if the use of titles indicating
recognized competence is restricted. He deplores the tendency to
"stake out a professional empire" and rather disarms criticism by
saying, "my own profession, clamoring as it does about the 'unau-
thorized practice of law,' set a bad example."
In most of the states which have regulatory accounting legislation,
the principal restriction is on the use of the titles "Certified Pub-
lic Accountant," "Public Accountant," or any designation which
might be confused with them. This is also the principle restric-
tion in the form of regulatory legislation recommended by the
American Institute.
The one area of professional accounting work which, in the public
interest, it seems necessary to restrict to licensed practitioners is the
expression of an opinion. The American Institute's regulatory bill,
and legislation now in force in a number of states, allow only
C.P.A.'s and registered P.A.'s to sign financial statements as ac-
countants or auditors, or in such a way as to indicate "expert knowl-
edge in accounting or auditing." It seems reasonable to provide that
only competent and responsible practitioners may sign reports on
which creditors and investors might risk their money. 29
Professional Education for the C.P.A.
A Commission on Standards of Education and Experience was
formally created in April 1952. The chairman of the Commission
^Editorial, "Legislation Regulating Professions," The Journal of Accountancy, CIX (January, I960),
27.
™Ibid., p. 28.
Public Accounting in the United States During 1950's 223
was Donald P. Perry and the secretary was Robert L. Kane, Jr.
The members of the commission were:
Elmer G. Beamer Thomas W. Leland
Herman W. Bevis J. Cyril McGarrige
Ralph L. Boyd Hermann C. Miller
Thomas H. Carroll Carroll V. Newson
Richard S. Claire Donald P. Perry
Clem W. Collins R. G. Rankin
Robert L. Dixon Emanuel Saxe
Ira N. Frisbee J. S. Seidman
S. Paul Garner Frank P. Smith
Raymond E. Glos A. Frank Stewart
Clifford V. Heimbucher William W. Werntz
Richard L. Kozelka Robert E. Witschey
The establishment of the commission represented the result of
at least twenty years of effort by successive committees of the Amer-
ican Institute, and the Association of C.P.A. Examiners, to bring
about more uniform and more realistic standards for the qualifi-
cation of C.P.A.'s.
There were two events that occurred in 1959 which resulted in the
formation of the Commission: in that year the American Insti-
tute* Committee on State Legislation undertook the preparation
of a revised accountancy statute, and at about the same time the
Association of C.P.A. Examiners appointed a committee to study
education and experience as a prerequisite for the C.P.A. examina-
tion. The widely differing points of view on education and ex-
perience expressed in the replies to a questionnaire completed by
a large number of practitioners resulted in the following proposal,
put forward in 1951 by Donald P. Perry at the 64th Annual Meet-
ing of the American Institute of Accountants:
I should like to see the executive committee and the council of the Institute
take the following steps in the near future:
1. Pass and publish a resolution, subsequently to be ratified by the mem-
bership, to put the Institute on record as favoring state legislation and state
board regulation which would foster adoption of uniform examination, educa-
224 History of Public Accounting
tional, and experience requirements for the issuance of C.P.A. certificates
throughout the nation.
2. Nominate and elect a Commission or Board on Standardization of Require-
ments for the Certificate, to cooperate or merge with the committee of the
Association of Public Accountant Examiners, for the purpose of developing and
publishing what it considers currently the minimum standards of examination,
education, and experience. Such a commission should include representatives
from state boards, from educators in the accounting field, from the committee
on education, selection of personnel and state legislation, and generally be
composed of respected members who would bring to the commission the author-
ity of broad experience and acknowledged interest in the welfare of the pro-
fession. Their responsibility should not be confined to the initial task of
formulating standards for the present, but should be a continuing endeavor
to see that standards are changed with changing conditions and raised as rapidly
as will meet with general acceptance. 30
On April 18, 1952, J. William Hope, the Institute President,
with the approval of the Executive Committee, created a small
committee to undertake study of the proposal set forth in this state-
ment. The President of the Institute and its Executive and Educa-
tional Directors met with S. Paul Garner, Raymond E. Glos, J.
Cyril McGarrige, and Donald P. Perry, to consider the desirability
and feasibility of creating an independent commission to formulate
standards of education and experience for C.P.A.'s. This group un-
animously approved the creation of a commission.
The commission was primarily concerned with the preparation
of individuals for public accounting practice as C.P.A.'s and with
the process by which the individual is designated as a C.P.A. The
commission recognized that there was little collegiate training in
accounting in 1900 when there were approximately 250 C.P.A.'s,
whereas programs in accounting are now available through-
out the United States and there are about 65,000 C.P.A.'s. The
American Institute's uniform C.P.A. examination, which was intro-
duced in 1917, is now used by all states in the United States. Thus,
ideally, all C.P.A.'s should have free entry into all political juris-
dictions. The first important step toward uniformity— the C.P.A.
examination— has been taken. The next step, agreement upon educa-
^Donald P. Perry, "Public Relations and Legislative Control of the Accounting Profession," Proceed-
ings of the 64th Annual Meeting of the American Institute of Accountants, p. 40.
Public Accounting in the United States During IQSO's 225
tion and experience requirements, is necessary before the C.P.A.
can have common national significance.
Professional training for public accounting, then, is primarily
dependent upon the formal educational process which facilitates a
logical division of preparation for professional practice into two
distinct parts, one to be accomplished through the formal educa-
tional process prior to admission, and the other through practical
experience acquired subsequent to admission. 31
Regarding the location of the academic facilities for training,
it was stated that:
. . . the Commission does not believe that the existing undergraduate programs
in schools of business administration generally provide the depth and compre-
hensiveness of training for a definite professional objective which are needed
by the C. P. A.'s of today and tomorrow. 32
The Commission reported that adequate preparation for the pro-
fession of public accountancy requires additional academic training
beyond present four-year undergraduate programs. The additional
educational program should be within the framework of collegiate
schools of business administration. Moreover, the Commission rec-
ommended that the C.P.A. examination be given at the conclusion
of the training acquired through the recommended formal educa-
tional process: practical experience should follow rather than pre-
cede admission to the examination of the accountant who has com-
pleted the recommended educational program. Accreditation of
the programs, once established by the colleges and universities,
would facilitate the maintenance of a desirable level of quality in
the training provided by educational institutions. 33
The Commission clearly stated that the accountant who has
been designated as a C.P.A. on the basis of prescribed educational
preparation and satisfactory completion of the examination is not
an experienced practitioner. Regarding experience for C.P.A.'s
the Commission stated:
^Standards of Education and Experience for Certified Public Accountants, Published for the Com-
mission by the Bureau of Business Research, University of Michigan, (Ann Arbor: Bureau of Business
Research, 1956), p. 119.
32/ bid., p. 120.
L, p. 123.
226 History of Public Accounting
. . . practical experience advances the competence of a public accountant
throughout his career, that some experience in practice has generally been relied
upon in the past, and is being presently relied upon as a prerequisite for
issuance of the C.P.A. certificate. 34
The recommendations of the Commission may be summarized
under five heads:
1. College graduation from a fifth-year professional accounting program,
with classroom material drawn from public practice, with faculties experienced
in public accounting.
2. A qualifying examination that would test the college graduate's intellec-
tual capacity, his academic achievements, and his aptitude for public accounting.
3. A professional academic program which would require a fifth year, which
would require the undergraduate curricula to adjust to the principal areas in
accounting and the specialized subject matter would be at the postgraduate
level in preparation for public accounting.
4. An internship program of approximately three months should be included
in the professional program, to be completed generally during the period of
December - April.
5. The Uniform C.P.A. Examination— as a long-range goal to become
effective as professional academic programs are developed, that individuals be
admitted to the C.P.A. examination upon completion of the recommended
educational preparation and, if successful, that they be awarded the certificate. 35
There were several Commission members who dissented as re-
gards the meaning of the C.P.A. or the experience requirements.
The dissenters were J. Cyril McGarrige, Emanuel Saxe, J. S. Seid-
man, and Richard S. Claire.
Council of American Institute Position on Standards
On April 22, 1959, the Council of the American Institute of
Certified Public Accountants adopted the recommendations of the
Special Committee that was appointed to study the Report of the
Commission on Standards of Education and Experience for C.P.A. 's.
mbid., p. 124.
^Ibid., p. 136.
Public Accounting in the United States During 1950's 227
The committee members were George D. Bailey, Chairman, Wil-
liam H. Holm, C. A. Moyer, John C. Potter, and T. Dwight Wil-
liams.
The Council of the American Institute then took the educa-
tional lead by adopting the following resolutions:
1. That the long-established meaning of the C.P.A. certificate as evidence of
demonstrated competence for the practice of public accounting be continued.
2. That a baccalaureate degree be made a requirement for the C.P.A. certif-
icate; that proportions among accounting, business, and nonbusiness subjects
in the curriculum recommended by the American Accounting Association
Standards Rating Committee are desirable; that those earning baccalaureate
degrees with considerable variations from these proportions be considered
deficient and be required to present evidence of equivalent study.
3. That studies be made by the Institute's committee on personnel testing
to ascertain whether the tests in the Institute's testing program can be adopted
or new tests developed to serve the purpose of screening applicants for post-
graduate accounting educational programs.
4. That postgraduate education for careers in public accounting is desirable
and that as soon as it is feasible postgraduate study devoted principally to
accounting and business administration become a requirement for the C.P.A.
certificate.
5. That an advisory committee of the Institute preferably acting with repre-
sentatives from the American Accounting Association, and the American Associa-
tion of Collegiate Schools of Business, be formed to assist interested schools in
planning and revising courses and programs for educating accountants and to
assist existing accrediting agencies and associations in evaluating accounting
courses and curriculums.
6. That student internship as a part of the student's educational program
be optional; that plans be developed by a committee of the Institute so that
internships may be well organized and carefully supervised by schools and
practitioners when used; and that serious effort be made toward answering
the problem of whether internships should be provided to all who qualify.
7. That an experience requirement be retained; that with the baccalaureate
degree with or supplemented by evidence of study of accounting to the extent
set forth in Resolution 2 the experience be not less than two years; that as
education is extended beyond the baccalaureate degree the length of experience
should be reduced but should not be less than one year; that the experience
should be under the guidance of a C.P.A. ancl some of the experience should
be in the area of third-party reliance; and that a committee of the Institute
should prepare a statement as to what, in general, should be an acceptable
type of experience for the C.P.A. certificate.
228 History of Public Accounting
8. That the existing purposes and level of the C.P.A. examination be con-
tinued.
9. That a candidate be permitted to take the examination when he feels
adequately prepared but not before he has successfully completed the recom-
mended educational requirements.
10. That the C.P.A. certificate be awarded after the candidate has successfully
completed the examination and experience requirements.
11. That individual practitioners and the American Institute of Certified
Public Accountants co-operate in rendering assistance to colleges by such means
as providing instructional materials drawn from business; providing student
scholarships and internships; providing funds for advanced study by faculty
members; endowing professorial chairs; providing faculty residencies; and by
serving as or providing special lecturers.
12. That state society committees on state legislation should consider local
conditions in timing any recommendation for necessary legislation.
13. That the American Institute of Certified Public Accountants take the
leadership in causing periodic reviews of education and experience for C.P.A. 's. 36
Graduate School in Accounting
The first graduate school of public accounting specifically de-
signed for liberal arts graduates wishing to obtain C.P.A. certificates
was established in 1955 by Rutgers University as a division of its
School of Business Administration. The school awards the Master's
degree in business administration. As a part of the academic pro-
gram, between the fall and spring semesters, degree candidates are
required to work for a firm of C.P.A.'s.
Serving as the advisory committee which assisted in the found-
ing of the Graduate School in Public Accounting were:
Samuel J. Broad Maurice E. Peloubet
Albert J. Eckhardt Abraham H. Puden
Arthur B. Foye Ira A. Schur
Thomas G. Higgins Charles H. Towns
Charles A. Hoyler George Wagner
John B. Inglis Roger Wellington
Alvin R. Jennings William W. Werntz 37
36 Official Releases, "Education and Experience for C.P.A.'s," The Journal of Accountancy, CVIII
(June, 1959), 71.
87 News Report, "Education — Graduate School in Accounting," The Journal of Accountancy, CI (May,
1956), 14.
Public Accounting in the United States During 1950's 229
The first graduate was John D. Campbell of Belleville, Pennsyl-
vania. The director and originator of the program was Professor
William J. vonMinden.
Continuing Education and the Institute
At the Spring 1958 meeting the American Institute's Council
approved an appropriation of $50,000 to engage a competent ad-
ministrator and inaugurate an expanded program to provide both
staff training for junior accountants in smaller firms, and more
professional courses for practicing Certified Public Accountants.
The plan was not only to develop additional materials for con-
tinuing education, but also to recruit and train teachers for the
program, and to assist state C.P.A. societies and chapters which
sponsor the course.
About the continuing education program the editor of The
Journal stated:
It is perhaps not too much to hope that availability of post-collegiate courses
for staff and partners of accounting firms will have a beneficial effect on account-
ing education generally, by encouraging emphasis on cultural subjects and
significant theory in the college curriculum. This should be a desirable trend
even if the Collegiate accounting course is expanded to five years or more. 38
Shortly after the American Institute's Council approved the
continuing education program, Lewis W. Matusiak was appointed
director.
The American Institute of C.P.A.'s initiated its formal continu-
ing program in 1956. It was a modest beginning, which required
only a part-time director. Under his auspices three continuing edu-
cation courses were set up: Report Writing, Tax Practice Ad-
ministration, and Accountants' Legal Responsibility.
In December, 1958, the continuing education function was trans-
ferred from the Education Division of the Institute and made the
sole activity of the newly created Division of Professional Develop-
ment. At present, in addition to a director, the division employs
^Editorial, "More Professional Education," The Journal of Accountancy, CVI (June, 1958), 26.
230 History of Public Accounting
three technical assistants and an administrative assistant. Two new
seminars have been developed, Accountants' Fees and Budgeting.
The cumulative enrollments in continuing education courses
through 1959 are:
1,823 in Report Writing
631 in Tax Practice Administration
476 in Accountants' Legal Responsibility
1,608 in the seminar on Accountants' Fees
34 in the seminar on Budgeting for Profit in Small Business.
The total enrollment in continuing education courses is 4,572.
It is apparent that the Institute's Professional Development Pro-
gram has made tremendous strides in a few short years.
Public Accountants' Cooperation With Bankers
One of the developments of the 1950's was the steady growth-in
cooperation between the public accounting profession and the bank-
ing fraternity.
Evidence of this cordial spirit was shown in a report issued by
Arthur L. Nash of the Robert Morris Associates' committee on
cooperation with public accountants. Mr. Nash discussed two im-
portant projects in his report resulting from the joint efforts of
R.M.A. and the American Institute, first the survey of audit re-
ports submitted to banks by Certified Public Accountants, and
second the memorandum for the auditor's file. The results of these
surveys disclosed that there is still considerable room for improve-
ment in audit reports.
Mr. Nash candidly told the R.M.A. annual meeting that the
survey also revealed another fact:
The difficulties of analyzing the individual reports from banks and the varia-
tions in the replies to a standard set of questions give rise to the thought we
bankers need to expand our knowledge of auditing standards, methods and
procedures if we are to properly evaluate and criticize an audit report. 39
"Editorial, "Cooperation Between Accountants and Bankers," The Journal of Accountancy, XCVIII
(November, 1954), 597.
Public Accounting in the United States During 1950 's 231
State Society of C.P.A.'s Anniversary
The two oldest state societies of C.P.A.'s both celebrated their
sixtieth anniversary in 1957. The New York Society, founded in
January, 1897, has grown from 16 charter members to more than
8,500. The Pennsylvania Institute, only two months younger, started
with 15 members, and now has approximately 2,800. 40
Women C.P.A.'s
According to the American Women's Society of C.P.A.'s there
have been 900 C.P.A. certificates issued to women since the first
received her certificate in 1899. 41 .
The Journal's Birthday
The first 50 years were eventful to The Journal. One of the pio-
neer C.P.A.'s, Colonel Robert H. Montgomery, once said that fifty
years ago the public accountant was "little known, little recognized,
little wanted. . . ." By contrast, the editors of The Journal state:
Today far from being little known, recognized, or wanted, the C.P.A. is sum-
moned to high posts of duty in the government; he is welcomed in the board
rooms of multi-billion dollar corporations; he is selected for top executive
positions in industry; he is consulted by Congress on matters of grave import
to the nation; and he is a subject of growing interest to the press. 42
The editors go on to say that the profession had to produce tech-
nical and ethical standards to justify continued acceptance of its
work. It has had to establish organizations for the orderly deter-
mination of professional policies.
The circulation of The Journal, which had begun in November,
1905, reached approximately 90,000 per month by the end of 1959.
*°News Report, "State Society Anniversaries," The Journal' of Accountancy, CIII (March, 1957), 14.
"Mews Report^ "Survey of Women C.P.A.S," The Journal of Accountancy, rTTWTVfrri.ary, fl, Q 5 7 )i 16.
^Editorial, "The Journal of Accountancy Has A Birthday," The Journal of Accountancy, XCIX
(November, 1955), 29.
232 History of Public Accounting
American Institute's Committee on Research Program
The Special Committee on Research was appointed in December,
1957 to consider a new approach and the means whereby accounting
research should be undertaken, accounting principles should be
promulgated, and adherence to them should be secured. This action
followed an address by Alvin R. Jennings, a past president of the
Institute, at the annual meeting in New Orleans in October, 1957,
in which he cited some of the difficulties of the present approach to
the problem (that is, the issuance of accounting and auditing re-
search bulletins on specific subjects) and suggested possible alterna-
tives.
Members of the Special Committee were Weldon Powell, Chair-
man, Andrew Barr, Carman G. Blough, Dudley E. Browne, Arthur
M. Cannon, Paul Grady, R. K. Mautz, Leonard Spacek, and William
W. Werntz.
The report of the committee was made in September, 1958. The
report of the special committee on research programs of the Ameri-
can Institute is of vital importance not only to the public account-
ing profession, but to all others who are concerned with account-
ing: business management, government agencies, investors, banks
and other financial organizations, industry associations, security
analysts, economists, teachers, controllers and internal auditors—
everyone who has to do with financial reporting in a free society.
The report suggests procedures which would assure even more
extensive discussion and interchange of opinion before statements
are given final approval. The American Institute accounting pro-
cedures committee had always attempted to consult interested
groups before the issuance of its bulletins.
The well-received Accounting Research Bulletins issued by the
American Institute's committee have gone a long way toward
achieving their major objective: "to narrow the areas of difference
in corporate financial statements." 43
Of primary importance in the report on research programs is
the stipulation that the new Accounting Principles Board and
accounting research staff be under specific instructions to study the
problems of financial accounting at four levels: postulates, princi-
^Editorial, "Accounting Research and Accounting Principles," The Journal of Accountancy, CVI
(December, 1958), 28.
Public Accounting in the United States During 1950's 233
pies, rules or guides for the application of principles, and research.
Of almost equal significance is the plan for greater participation
by individuals and groups both inside and outside the public ac-
counting profession. Instead of sending out accounting research
bulletins for comment in semi-final form after extensive discussion
by the accounting procedures committee, there would ordinarily
be published an initial research study, issued on the authority of
the Director of Accounting Research and those associated with him
in the specific project. While in preparation, these studies would
be publicly announced, and comments requested. After publica-
tion, there would be further opportunity for suggestions and criti-
cisms before the Accounting Research Board decided whether or
not to embody the conclusion of the research study in a Statement
of Generally Accepted Accounting Principles. 44
The Special Committee on Research in its report specifically
proposed that the organization carry out the accounting research
program and related activities of the Institute; it would consist of
an Accounting Principles Board and an accounting research staff.
The Board, consisting of eighteen members of the Institute,
would be designated a senior technical committee, the sole group
in the Institute having authority to make pronouncements on ac-
counting principles. The accounting research staff would comprise,
on a permanent basis, a director of accounting research, three to
five senior members, two to three junior members, and necessary
secretarial assistance. The Director of Accounting Research would
be the administrative head of the accounting research staff, and
would have active charge and direction of the carrying out of the
accounting research program. The following statement sets forth
the purpose of the research:
The principal products of the proposed accounting research program and
related activities would be a series of accounting research studies and a series of
statements on generally accepted accounting principles. 45
The research studies and statements on generally accepted ac-
counting principles, issued under the name of the Director of Re-
"lbid., p. 28.
* 5 Official Releases, "Report to Council of the Special Committee on Research Program," The Journal
of Accountancy, CVI (December, 1958), 64.
234 History of Public Accounting
search, would be tentative and not authoritative. They would
furnish a vehicle for the exposition of matters for consideration and
experimentation.
The statements of generally accepted accounting principles
would be issued by the Board of Accounting Principles and would
be expected to be regarded as an authoritative written expression
of what constitutes generally accepted accounting principles. They
ordinarily would be based on accounting research studies previously
prepared by the accounting research staff. As in the case of the ac-
counting research studies, the statements on generally accepted
accounting would be framed in relation to basic postulates and
broad principles.
The various statements on generally accepted accounting prin-
ciples would not be presented to th,e Council or to the membership
of the American Institute of Certified Public Accountants for ap-
proval, except in rare cases. The Accounting Principles Board
would replace the committees on accounting procedures and on
terminology.
The Council of the American Institute of Certified Public Ac-
countants, in 1959, unanimously approved the proposal of the
Special Committee on Research programs. At the same meeting of
the Council a new Institute staff division was created under a
director of accounting research.
An Accounting Research Board was elected by the Institute
Council, and it superseded the Accounting Procedures Committee
at the end of the 1959 fiscal year. The following members of the
Institute were elected to serve on the Accounting Principles Board:
Weldon Powell, Chairman Joel Hunter, Jr.
Arthur M. Cannon Ira A. Schur
Ira N. Frisbee John H. Zebley
Thomas G. Higgins Carman G. Blough
Alvin R. Jennings Gordon S. Battelle
C. A. Moyer John B. Inglis
Henry T. Chamberlain John W. McEachren
James L. Dohr Herbert D. Miller
James E. Hammond Hassel Tippit 46
"News Report, "Professional-New Institute Research Program," The Journal of Accountancy, CVIII
(June, 1959), 7.
Public Accounting in the United States During 1950's 235
One of the first objectives of the program will be a study of the
basic postulates underlying accounting principles. It is also expected
that the Accounting Principles Board will concern itself with the
preparation of a statement of broad principles of accounting to serve
as the foundation for future pronouncements on accounting matters.
Prior to the publishing of any pronouncement a public an-
nouncement will be made and interested parties will be invited to
submit their views. After the study has been issued it will be re-
viewed by the Accounting Principles Board and may be accepted
as a basis for the issuance of a statement of generally accepted
principles, rejected with a public explanation, or laid aside for
future action.
Prior to the formation of the accounting research program there
were criticisms of the accounting profession and the accounting
function. Most of the criticisms were concerned with alleged in-
consistencies or inadequacies in financial statements prepared for
investors and the public. There are also disturbing signs that busi-
ness executives find accounting in some respects unsatisfactory for
their own decision-making purposes. Some examples of these criti-
cisms will illustrate their general tenor. The financial vice president
of the Chesapeake and Ohio Railroad asserts:
The role of accounting in management affairs has been grossly misrepresented,
grossly overstated. . . . Offhand, I cannot think of a single major decision that
we make by going back to these books to find out what the dividend rate of the
Chesapeake and Ohio Railroad should be. We did not rush to these books to
decide whether or not we should spend $125 million this year on capital im-
provements ... as a practical matter, there is no single set of statements, there
is no single accounting system that anybody can devise, whether it be the
Institute of Accountants or the Interstate Commerce Commission, which would
serve all of the purposes of investors, all of the purposes of management, and all
of the purposes of government agencies, regardless of whether they be for taxing
purposes or for purposes of regulation. Vast additional data of all sorts is
necessary to keep these folks properly informed. 47
This view was echoed in a statement filed with the Interstate Com-
merce Commission December 30, 1957, on behalf of the Association
of American Railroads:
^Editorial, "New Solution for New Problems," The Journal of Accountancy, CV (March, 1958), 29.
236 History of Public Accounting
Once again the theoretical pedantic approach . . . illustrates why business
management is so little influenced by bookkeeping practices. 48
As for labor's attitude, a criticism from AFL-CIO president George
Meaney, on December 29, 1958, stated:
Currently published profit pictures are understated by as much as $3 billion
to $4 billion, because the methods of computing depreciation allowances have
been changed. 49
Accounting Research, Terminology, and Auditing Bulletins
Some significant contributions to the field of accounting literature
and accounting theory in the series of Accounting Research Bulletins,
Accounting Terminology Bulletins, and Statements on Auditing pro-
cedures issued by the American Institute during the 1950's are listed
herewith.
ACCOUNTING RESEARCH BULLETINS
ISSUED FROM 1950 to 1959
No. Date Issued Title
40 September, 1950 Business Combinations
This statement differentiates between two types
of corporate combinations. Where there is a con-
tinuance of the former ownership it is known as a
"pooling of interests." Where there is a new own-
ership it is known as a "purchase." The account-
ing treatment applicable to each type of combina-
tion is considered.
41 July, 1951 Presentation of Income and Earned Surplus
(Supplement to Bulletin No. 35)
This bulletin confirms bulletin No. 35 which
states that those extraordinary items which are
^Ibid., p. 29.
^Ibid., p. 30.
Public Accounting in the United States During 1950's
237
omitted from the determination of net income
should be shown in the surplus statement and
not as deductions from or additions to net in-
come in the income statement. The committee
holds to this opinion even though Rule 5-03, Reg-
ulation S-X of the Securities and Exchange Com-
mission makes provision for the addition or deduc-
tion of such extraordinary items at the bottom of
the income statements filed with the commission.
The committee is of the final opinion that either
the form recommended in Bulletin No. 35 or the
form required by Regulation S-X is acceptable.
13 July, 1951
(Addendum)
Limitation of Scope of Special War Reserves
This addendum merely voided the use of Bul-
letins No. 13 and 26, dealing with the establish-
ment and use of special war reserves.
26 July, 1951
(Addendum)
Limitation of Scope of Special War Reserves
This addendum was the same as the addendum
on Bulletin Number 13. It merely stated that
Bulletins No. 13 and 26, dealing with the estab-
lishment and use of special war reserves were no
longer applicable.
42 November, 1952
Emergency Facilities— Depreciation, Amortization,
and Income Taxes
11 November, 1952
(Revised)
Accounting for Stock Dividends and Stock Split-
Ups
37 January, 1953
(Revised)
Accounting for Compensation Involved in Stock
Option and Stock Purchase Plans
This bulletin considers the problems of com-
pensation raised by stock option plans and stock
purchase plans. Accordingly it considers, rights
involving compensation, rights not involving com-
pensation, time measurement of compensation,
manner of measurements, and disclosure.
238
43 1953
History of Public Accounting
Restatement and Revision of Accounting Research
Bulletins
This is a very important bulletin in that it can-
celled and replaced the first 42 bulletins issued
from 1939 to 1953, with the exception of the eight
terminology bulletins. Its purposes were to elimin-
ate what was no longer applicable, to condense
and clarify what continued to be of value, to re-
vise where changed views required revision, and
to arrange the retained subject matter by subjects
rather than in the order of issuance. This examin-
ation of previous pronouncements and the changes
brought forth by such scrutiny were a definite
contribution to the entire profession of account-
ing by the committee on accounting procedure.
44 October, 1954
Declining-balance Depreciation
The declining-balance method is "systematic and
rational." It is a very satisfactory allocation of
cost where the expected productivity or revenue-
earning power of an asset is relatively greater
during its early life, or where maintenance charges
tend to increase during the later years.
45 October, 1955
Long-term Construction-type Contracts
This bulletin covers accounting problems re-
lated to construction type contracts of a long-
term nature. Two generally accepted methods, the
percentage-of-completion method and the com-
pleted-contract method, are discussed.
46 February, 1956
Discontinuance of Dating Earned Surplus
The dating of earned surplus following a quasi-
reorganization would rarely be of significance
after a period of ten years. Under exceptional cir-
cumstances, the discontinuance of the dating of
earned surplus could be justified in a lesser period.
Public Accounting in the United States During 1950's 239
47 September, 1956 Accounting for Costs of Pension Plans
This bulletin considers the treatment of costs of
pension plans in the accounts and reports of com-
panies having such plans.
48 January, 1957
Business Combinations (Supersedes Chapter 7 (c)
of Accounting Research Bulletin No. 43)
This bulletin considers the accounting prob-
lems involved in two types of business combina-
tions namely, a purchase and a pooling of inter-
ests.
49 April, 1958
Earnings per share
This bulletin deals with several problems aris-
ing in the computation and presentation of data
on earnings per share. It covers single-year com-
putations, comparative statistics, earnings of senior
securities, and dividends per share.
44 July, 1958
(Revised)
Declining-balance Depreciation
(Supersedes Bulletin No. 44)
This bulletin supplements Bulletin No. 44. It
considers the problem where the declining-balance
method is adopted for income-tax purposes but
other appropriate methods are used for financial
accounting purposes. It is recommended that
recognition should be given to deferred income
taxes if the amounts thereof are material, except
in those cases where charges for deferred taxes
are not allowed for rate-making purposes, in
which case accounting recognition need not be
given to deferred taxes if it can reasonably be
expected that future rate determinations will
cover the expected increased future income taxes,
resulting from the earlier deduction of declining-
balance depreciation for income tax purposes
only.
240
50 October, 1958
History of Public Accounting
Contingencies
51 August, 1959
This bulletin treats the disclosure of those con-
tingencies in which the outcome is not sufficiently
predictable to permit recording in the accounts,
but in which there is a reasonable possibility of an
outcome which might materially affect financial
position or results of operations.
Consolidated Financial Statements
This bulletin concerns problems dealing with
consolidated statements. It has sections dealing
with the purpose of consolidated statements, con-
solidation policy, general consolidation procedure,
elimination of intercompany investments, minor-
ity interests, income taxes, stock dividends of sub-
sidiaries, unconsolidated subsidiaries in consoli-
dated statements, combined statements, and par-
ent-company statements.
ACCOUNTING TERMINOLOGY BULLETINS
ISSUED 1950 to 1959
No. Date Issued
1 1953
Title
Review and Resume
The purpose of this bulletin was to initiate a
series of bulletins on terminology separate from
those on accounting procedure. Therefore, this
bulletin was primarily a review of the past ac-
counting Research Bulletins dealing with termin-
ology (Nos. 7, 9, 12, 16, 20, 22, 34, and 39) . This
bulletin includes the terms value, assets, liabilities,
accounting, accountancy, accounting principles and
postulates, balance sheet, income, income state-
ment, profit, profit and loss statement, undistri-
buted profits, earned surplus, audit, opinion re-
port or certificate, depreciation, depreciation ac-
counting, reserve, and surplus.
Public Accounting in the United States During 1950's 241
2 March, 1955 Proceeds, Revenue, Income, Profit, and Earnings
The use of the terms revenue, income, profit,
and earnings (and sometimes proceeds) generally
relate to an increase (or decrease) in the owners'
equity which results from operations of the enter-
prise. To promote uniformity of usage these
terms were defined and recommendations for their
use were made in this bulletin.
August, 1956
Book Value
4 July, 1957
This bulletin discusses the meaning of "book
value" and when such term should and should not
be employed.
Cost, Expense and Loss
Definitions of and recommendations for the use
of the terms cost, expense, and loss are included
in this bulletin.
STATEMENTS ON AUDITING PROCEDURE
ISSUED 1950 to 1959
No. Date Issued
1951
Title
Codification of Statements on Auditing Procedure
This pamphlet was prepared by the committee
on auditing procedure to consolidate the more
valuable and useful information of Statements on
Auditing Procedure, Nos. 1 to 24 inclusive. It
eliminated obsolete material and condensed, clari-
fied, and revised the materials currently applic-
able. In so doing, this statement represented a
definite contribution to the entire profession of
accounting, particularly to the auditing area.
242
25 October, 1954
26 April, 1956
27 July, 1957
28 October, 1957
29 October, 1958
History of Public Accounting
Events Subsequent to the Date of Financial
Statements
This statement considers and clarifies the extent
of the auditor's responsibility in connection with
the disclosure of events occurring or becoming
known subsequent to the date of the statements
on which he is expressing an opinion.
Reporting on Use of "Other Procedures"
This statement arrived at the conclusion that in
all cases in which the extended auditing proced-
ures are not carried out with respect to inven-
tories or receivables and they are a material fac-
tor, the independent CPA should not only disclose,
in the general scope section of his report the omis-
sion of the procedures, regardless of whether or
not they are practicable and reasonable, but also
should state that he has satisfied himself by means
of other auditing procedures if an unqualified
opinion is to be expressed.
Long-Form Reports
This statement deals with the long-form report
and the application of standards of reporting.
Special Reports
This statement covers the applicability of gen-
erally accepted auditing standards to "special re-
ports." This includes wording of the opinion.
These special reports may cover reports on finan-
cial statements of companies not using the accrual
basis of accounting, the reports on financial
statements of some nonprofit organizations, and
reports prepared for limited purposes.
Scope of the Independent Auditor's
Review of Internal Control
This statement considers the scope of the in-
dependent auditor's review of internal control as
it pertains to his examination leading to an ex-
pression of an opinion on the fairness of the
financial statements.
Public Accounting in the United States During 1950's 243
Cooperation with Noncertified Public Accountants
The 1959 decision of the Institute Council to cooperate with non-
certified public accountants was consistent in following its legislative
policy on restrictive legislation. The council voted to:
foster closer relations between C.P.A.'s and non-C.P.A.'s licensed to practice ac-
counting with the purpose of improving educational, technical, and ethical
standards. 50
Sixth International Congress
The Council of the Sixth International Congress on Accounting,
1952, appointed Sir Harold Gibson Howitt president of the Con-
gress to be held in London in June, 1952. Sir Harold is a past
president of the Institute of Chartered Accountants in England and
Wales. Charles Percival Barrowcliff, Past President of the Society
of Incorporated Accountants and Auditors, was appointed vice
president of the Congress. 51 The concept of one world is not likely
to become a reality for some time, but progress toward one ac-
counting world was greatly accelerated by this meeting. There were
about 80 American C.P.A.'s in attendance at the Sixth International
Congress. In total, there were 2,500 representatives of 36 nations
in attendance.
George O. May, C.P.A., of the United States, was the only at-
tender who had also been an active participant in the First Interna-
tional Congress held at St. Louis, Missouri, in 1904.
The following general observation was made on the technical
portions of the program:
[It is a] basis for the free exchange of technical information and professional
opinion, and possibly for future efforts to cooperate in the development of com-
mon terminology and technical standards. 52
^News Report, "Professional-New Institute Research Program," The Journal of Accountancy, CVIII
(June, 1959), 7.
^Current Notes-Briefs, "The Council," The Journal of Accountancy, XCII (December, 1951), 656.
B2 Editorial, "Toward One Accounting World," The Journal of Accountancy, XCTV (August, 1952), 163.
244 History of Public Accounting
The following subjects were the topics covered at the Congress:
(1) Fluctuating Price Levels in Relation to Accounts (eight papers by represen-
tatives of seven countries, including Professor Willard J. Graham and Edward
B. Wilcox of the U.S.A.) ; (2) Accounting Requirements for Issues of Capital
(five papers by representatives of six countries) ; (3) The Accountant in Indus-
try (seven papers by representatives of six countries, including Clinton W.
Bennett of the U.S.A.) ; (4) The Accountant in Practice and in Public Service
(eight papers by representatives of seven countries, including T. Coleman An-
drews of the U.S.A.) ; (5) The Incidence of Taxation (seven papers by repre-
sentatives of seven countries, including Thomas J. Green of the U.S.A.) , 53
Seventh International Congress
More than 2,800 accountants gathered in Amsterdam on Septem-
ber 9 to 13, 1957, for the Seventh International Congress of Ac-
countants. Accountants from 40 nations were present, representing
104 accounting organizations; the United States representation was
about 110. Ninety members of the American Institute of Certified
Public Accountants were listed, ten representatives of the National
Association of Accountants, five of the Institute of Internal Ac-
countants, five of the Institute of Internal Auditors, four of the
American Accounting Association, and two of the Controllers In-
stitute of America.
American participation in the technical programs included the
papers and discussions listed herewith.
Arthur B. Foye and Carman G. Blough, on the topic "Principles for the Account-
ants Profession."
Donald J. Bevis, was the author of a paper "Verification of the Existence of
Assets."
Joseph Peleg, contributed a paper on "Budgeting and Corresponding Modern-
ization of Accounting."
^John L. Carey, "One Man's View of the Sixth International Congress on Accounting," The Journal
of Accountancy, XCIV (September, 1952), 307.
Public Accounting in the United States During 1950's 245
W. A. Walker, authored a paper on "The Internal Auditor." W. R. Davis was
a member of a discussion panel on the same topic.
G. L. Phillippe, was the author of a paper entitled "Business Organization and
the Public Accountant."
Ira N. Frisbee, was author of a paper and member of the panel on the subject
"Ascertainment of Profit in Business." Weldon Powell was a member of the
same panel. 54
Committee on Long-Range Objectives of the Profession
The purpose of this committee was to clarify the objectives and
goals of the American Institute, and recommend to the council
resolutions which would make such goals part of the official policy
of the organization.
The members of the Committee on Long-Range Objectives dur-
ing the 1958-59 year were J. S. Seidman, Chairman, Herman W.
Bevis, Robert M. Trueblood and Robert E. Witschey. As a result
of their work, the Institute's Council adopted two basic objectives
in 1958:
1. It is an objective of the Institute to serve as the national organization of cer-
tified public accountants in and out of public practice, and to develop and
maintain the form of organization best adapted to the needs of all its members.
2. It is an objective of the Institute to encourage co-operation and consultation
among national organizations of accountants to the end that the entire account-
ing function may make its greatest contribution to the public welfare. 55
American Institute's Films
The first of the Institute's films, entitled "Accounting— The
Language of Business," was produced in 1953. Primarily intended
^John L. Carey, "The Seventh International Accounting Congress," The Journal of Accountancy, CIV
(December, 1957), 35.
^Official Releases, "Long-Range Objectives of the Accounting Profession," The Journal of Account-
ancy, CVII (May, 1959), 71.
246 History of Public Accounting
to attract young people to the profession, it has been shown 21,845
times before audiences of students, service clubs and business
groups totaling well over one million people. The movie has been
telecast 501 times to an estimated audience of 39 million, has won
two awards for excellence among educational films, and has re-
ceived enthusiastic praise from teachers who have used it in their
classes.
A second film, "Helping the Taxpayer," which dramatizes the
work of the certified public accountant in tax practice, has been
shown 11,384 times to live audiences in less than five years, and
1,101 times on television to audiences of over 100 million. "CPA,"
the third Institute release, came out late in 1959. The film presents
the highlights of one day in the life of a certified public account-
ant. 56
C.P.A. Examiners Meet
The first meeting of the Association of Certified Public Account-
ant Examiners was held in Atlantic City on October 20-22, 1908,
attended by the representatives of ten state boards. The Associa-
tion's golden anniversary meeting convened in New Orleans on
October 26 and 27, 1957. The Uniform C.P.A. Examination is
now used by all 50 states. 57
Institute Membership
The American Institute of Certified Public Accountants passed
another milestone in 1959 when the total membership reached
35,000. The upward trend is even more significant in that in 1946
the number reached 10,000. In 1950 there were 15,000, in 1952,
20,000, and in 1955, 25,000. 58
A. I. A. Becomes A.I.C.P.A.
The first proposal to change the name of the American Institute
of Accountants to the American Institute of Certified Public Ac-
countants was rejected by the membership.
^Editorial, "Dramatizing the Accounting Profession," The Journal of Accountancy, CVIII (December,
19S9), 29.
57 News Report, "C.P.A. Examiners Meet," The Journal of Accountancy, CIV (December, 1957), 10.
^Editorial, "Thirty Thousand Members," The Journal of Accountancy, CIV (October, 19S7), 30.
Public Accounting in the United States During 1950's 247
In order to pass, the measure had to be voted upon by one third
of the membership and receive the approval of two thirds of those
voting. The proposal was voted down in a count of 10,363 in favor
to 6,992 against. 59
However, on the second time of proposing, the name change was
approved by the membership, to become effective June 1, 1957.
The final vote was 18,885 in favor to 1,042 opposed. Membership
at the time of the mailing of the ballots was 27,850. Reconsideration
of the name change had been urged by the Public Relations Com-
mittee of the Institute, and approved by the Council and by mem-
bers present at the annual meeting in September of 1956. Reasons
given for the change stressed the desirability of keeping the title
Certified Public Accountant before the public and making clear in
the name that the Institute is the national professional organiza-
tion of C.P.A.'s. 60
What's in a Name?
On June 3, 1957, the American Institute of Accountants became
the American Institute of Certified Public Accountants. This altera-
tion was made in recognition of a change which had taken place
years before in the qualification for new members.
When the original organization was incorporated as the Ameri-
can Association of Public Accountants on August 13, 1887, there
were no C.P.A.'s. The title did not come into use until the New
York State accountancy law was enacted in 1896.
The name was changed to the American Institute of Accountants
in 1917. At that time the organization had a membership of 1,150,
and there were scarcely more than 3,000 C.P.A.'s in the United
States. One of the first major activities of the Institute was the devel-
opment of the examination, originally for admission to membership,
which, over the years, has been adopted by state boards of account-
ancy as the Uniform C.P.A. Examination. Successful completion of
the examination is now the prerequisite to becoming a C.P.A. in
every state.
Since the American Society of C.P.A.'s was merged with the
w News Report, "AIA Name Change Rejected," The Journal of Accountancy, CI (February, 1956), 7.
"News Report, "Name Change Approved," The Journal of Accountancy, CIII (January, 1957),
248 History of Public Accounting
American Institute in 1936, the Institute has been the only national
organization of C.P.A.'s. 61
Institute and Accounting Opinions
In 1959 three public utility companies obtained a series of tem-
porary injunctions against the Institute of C.P.A.'s, preventing
issuance of a letter interpreting Accounting Research Bulletin
Number 44 (Revised) which had been approved by eighteen of
the twenty-one members of the accounting procedures committee.
The utility companies which had obtained the injunction con-
tended that removal from the equity sections of their balance
sheets of amounts which had been shown there as "earned income
taxes" would limit their short-term borrowing power and other-
wise interfere with their activities. The utilities said in their com-
plaint that because of the "prestige and authority of the Institute
and the Committee," issuance of the letter would:
cause substantial numbers of accountants, financial institutions, investment bank-
ing concerns, rating services, financial analysts and governmental agencies to
question the continued inclusion of credits for deferred taxes in the earned sur-
plus accounts of plaintiffs. . . , 62
The plaintiffs claimed that because of the prestige of the Institute
and its committee, dissemination of the opinion would cause them
"irreparable damage."
The plaintiffs asked specifically that the Accounting Procedures
Committee be restrained from issuing the letter until other groups
were given an opportunity to comment.
The first temporary restraining order had been issued, without
notice or hearing, on April 15, 1959, and a hearing was held on
May 7, 1959. Following the hearing, on May 20, the position of the
Institute and the Accounting Procedures Committee was upheld in
a decision by Judge Levet of the United States District Court for
the Southern District of New York. Judge Levet said:
61 Editorial, "What's in a Name?," The Journal of Accountancy, CIV (June, 1957), 30.
62 News Report, "Institute Wins Court Case," The Journal of Accountancy, CVIII (August, 19S9), 7.
Public Accounting in the United States During 1950's 249
The purposes of the defendant Institute are adequate justification, if justification
indeed be required, to permit the proposed communications. There is no ade-
quate proof (even if the plaintiffs had any right to insist on the committee pro-
cedures they mention) that the Institute's rules have been or are about to be
violated. In fact, the contrary appears.
There is no allegation that the method of accounting proposed by defendants is
inherently false or fraudulent. On the contrary, it is supported by respectable
authority. Neither is there any allegation of special damages, except in the most
general and speculative terms. 63
However, Judge Levet issued a temporary injunction enjoining
the mailing of the letter pending a hearing by the Court of Appeals
on a motion to be made in that court for an injunction. After hear-
ing arguments from both sides, the Court of Appeals on June 17,
1959 unanimously affirmed the decision of the District Court, and
dissolved the injunction.
On June 19, 1959, Judge Lumbard of the Court of Appeals re-
instated the injunction, pending a hearing by a Justice of the
United States Supreme Court on an application for a further in-
junction. Such an application was heard and denied by Justice
Brennan of that court on July 6, 1959. In denying the application
Justice Brennan said:
... in my judgment none of the questions proposed to be presented in the peti-
tion for certiorari have the prospect of commanding four votes for review. 64
The right to issue such opinions has been upheld by a U. S.
District Court and the Court of Appeals for the Second Circuit of
New York. The decisions of the District Court and the Court of
Appeals both contain language of far-reaching significance. The
Institute's new Accounting Principles Board was thus given the
opportunty to carry out its function of formulating basic account-
ing postulates and statements on accounting principles.
™Ibid., p. 7.
^News Report, "Supreme Court Review Requested," The Journal of Accountancy, CVIII (November,
19S9), 7.
250 History of Public Accounting
The plaintiffs did not challenge the right of the Institute or its
committee to issue opinions in the field of accounting. Instead, they
protested that the committee had not submitted an "exposure
draft" of its opinion to other interested organizations. The Institute
has an expressed policy of expanding its consultation with other
groups before statements on accounting principles are issued. How-
ever, the final responsibility for its opinions and procedures must
rest with the Institute, or with the appropriate committee or board
to which it delegates such responsibility. This principle has been
upheld by the court decisions.
In rejecting the contention of the plaintiffs, Judge Levet of the
U. S. District Court (Southern District, New York) said:
. . . the communications which defendants intend to promulgate do not men-
tion plaintiffs. The plaintiffs, like other business enterprises which may be
affected, may, if they so elect, appear before the appropriate governmental
body to sustain their own contentions. There is no misrepresentation, no
fraud. The acts of the defendants can hardly be termed wanton. The purposes
of the defendant Institute are adequate justification, if justification indeed be
required, to permit the purpose communications. There is no adequate proof,
even if the plaintiffs had any right to insist on the Committee procedures they
mention, that the Institute's rules have been or are about to be violated. In
fact the contrary appears. 65
The Court of Appeals, in its unanimous per curiam opinion up-
holding Judge Levet, went even further in establishing the right of
the American Institute of C.P.A.'s, as a professional organization, to
issue statements in the area of its professional competence.
The Court of Appeals said:
On the merits we agree with Judge Levet's reasoned opinion below, D.C.S.D.
N.Y., May 20, 1959. We think the courts may not dictate or control the pro-
cedures by which a private organization expresses its honestly held views.
Defendant's action involves no break of duty owed by them to the plaintiffs.
On the contrary, every professional body accepts a public obligation for un-
^Editorial, "Institute's Right to Issue Accounting Opinions Upheld by Courts," The Journal of
Accountancy, CVIII (August, 1959), 23.
Public Accounting in the United States During 1950's 251
fettered expression of views and loses all right to professional consideration, as
well as all utility, if its views are controlled by other criteria than the intellectual
conclusions of the person acting. Absent a showing of actual malice or its
equivalent the courts would be making a great mistake, contrary indeed to
their own ideas and professions, if they assumed to restrict and denigrate this
widely recognized and assumed professional duty. 66
The authority of the American Institute's accounting research
bulletins has always been widely recognized; this legal affirmation
of the Institute's rights and obligations came at an opportune time,
as the new Accounting Principles Board prepared to take up its
duties.
Rules of Professional Conduct
The rules of professional conduct for all members of the Ameri-
can Institute of Certified Public Accountants indicate the high
professional standards that must be maintained. These rules are as
follows:
RULES OF PROFESSIONAL CONDUCT
American Institute of Certified Public Accountants
As Revised January 20, 1958
(These rules of conduct supplement the disciplinary clauses of the by-laws.)
(1) A firm or partnership, all the individual members of which are members
of the Institute, may describe itself as "Members of the American Institute of
Certified Public Accountants," but a firm or partnership, not all the individual
members of which are members of the Institute, or an individual practicing
under a style denoting a partnership when in fact there be no partner or
partners, or a corporation, or an individual or individuals practicing under a
style denoting a corporate organization shall not use the designation "Members
of the American Institute of Certified Public Accountants."
(2) A member shall not allow any person to practice in his name who is
not in partnership with him or in his employ.
™Ibid., p. 24.
252 History of Public Accounting
(3) Commissions, brokerage, or other participation in the fees or profits
of professional work shall not be allowed directly or indirectly to the laity by
a member.
Commissions, brokerage, or other participation in the fees, charges, or profits
of work recommended or turned over to the laity as incident to services for
clients shall not be accepted directly or indirectly by a member.
(4) A member shall not engage in any business or occupation conjointly
with that of a public accountant, which is incompatible or inconsistent there-
with.
(5) In expressing an opinion on representations in financial statements
which he has examined, a member may be held guilty of an act discreditable
to the profession if
(a) he fails to disclose a material fact known to him which is not disclosed
in the financial statements but disclosure of which is necessary to make the
financial statements not misleading; or
(b) he fails to report any material misstatement known to him to appear in
the financial statement; or
(c) he is materially negligent in the conduct of his examination or in mak-
ing his report thereon;
(d) he fails to acquire sufficient information to warrant expression of an
opinion, or his exceptions are sufficiently material to negative the expression
of an opinion; or
(e) he fails to direct attention to any material departure from generally
accepted accounting principles or to disclose any material omission of gen-
erally accepted auditing procedure applicable in the circumstances.
(6) A member shall not sign a report purporting to express his opinion as
the result of examination of financial statements unless they have been ex-
amined by him, a member or an employee of his firm, a member of the Institute,
a member of a similar association in a foreign country, or a certified public
accountant of a state or territory of the United States or the District of
Columbia.
(7) A member shall not directly or indirectly solicit clients by circulars or
advertisements, nor by personal communication or interview, not warranted by
existing personal relations, and he shall not encroach upon the practice of
Public Accounting in the United States During 1950's 253
another public accountant. A member may furnish service to those who request
it.
(8) Direct or indirect offer of employment shall not be made by a member
to an employee of another public accountant without first informing such ac-
countant. This rule shall not be construed so as to inhibit negotiations with
anyone who of his own initiative or in response to public advertisement shall
apply to a member for employment.
(9) Professional service shall not be rendered or offered for a fee which shall
be contingent upon the findings or results of such service. This rule does not
apply to cases involving federal, state, or other taxes, in which the findings
are those of the tax authorities and not those of the accountant. Fees to be
fixed by courts or other public authorities, which are therefore of an indeter-
minate amount at the time when an engagement is undertaken, are not regarded
as contingent fees within the meaning of this rule.
(10) A member shall not advertise his professional attainments or services:
(a) The publication of what is technically known as a card is restricted to
an announcement of the name, title (member of American Institute of Cer-
tified Public Accounts, CPA, or other professional affiliation or designa-
tion) , class of service, and address of the person or firm, issued in connec-
tion with the announcement of change of address or personnel of firm, and
shall not exceed two columns in width and three inches in depth if appear-
ing in a newspaper and not to exceed one-quarter of a page if appearing
in a magazine or similar publication.
(b) A paid listing in a directory is restricted to the name, title, class of
service, address and telephone number of the person or firm, and it shall
not appear in bold type, box, or other form of display, or in a style which
differentiates it from other listings in the same directory.
(11) A member shall not be an officer, director, stockholder, representative,
or agent of any corporation engaged in the practice of public accounting in any
state or territory of the United States or the District of Columbia.
(12) A member shall not permit his name to be used in conjunction with
an estimate of earnings contingent upon future transactions in a manner
which may lead to the belief that the member vouches for the accuracy' of the
forecast.
254 History of Public Accounting
(13) A member shall not express his opinion on financial statement of any
enterprise financed in whole or in part by public distribution of securities, if
he owns or is committed to acquire a financial interest in the enterprise which
is substantial either in relation to its capital or to his own personal fortune,
or if a member of his immediate family owns or is committed to acquire a
substantial interest in the enterprise. A member shall not express his opinion
on financial statements which are used as a basis of credit if he owns or is
committed to acquire a financial interest in the enterprise which is substantial
either in relation to its capital or to his own personal fortune, or if a member
of his immediate family owns or is committed to acquire a substantial interest
in the enterprise, unless in his report he discloses such interest.
(14) A member shall not make a competitive bid for professional engage-
ments in any state, territory, or the District of Columbia, if such a bid would
constitute a violation of any rule of the recognized society of certified public
accountants or the official board of accountancy in that state, territory, or
District.
(15) A member engaged in an occupation in which he renders services of a
type performed by public accountants, or renders other professional services,
must observe the by-laws and rules of professional conduct of the Institute in
the conduct of that occupation.
(16) A member shall not violate the confidential relationship between him-
self and his client.
(17) A member in his practice of public accounting shall not permit an
employee to perform for the member's clients any services which the member
himself or his firm is not permitted to perform.
(18) A member who receives an engagement for services by referral from
another member shall not extend his services beyond the specific engagement
without consulting with the referring member.
(19) A member shall not permit his name to be associated with statements
purporting to show financial position of results of operations in such a manner
as to imply that he is acting as an independent public accountant unless he
shall: (1) express an unqualified opinion, or (2) express a qualified opinion,
or (3) disclaim an opinion on the statements taken as a whole and indicate
clearly his reasons therefor, or (4) when unaudited financial statements are
presented on his stationery without his comments, disclose prominently on
each page of the financial statements that they were not audited. 67
67 Rules of Professional Conduct, American Institute of Certified Public Accountants, p. 14.
Public Accounting in the United States During 1950*s 255
The January 20, 1958 rules of professional conduct of the Ameri-
can Institute of Certified Public Accountants have changed over
the years in accordance with the needs of the emerging profession
of public accountancy. It is significant to note the change in the
rules since the American Institute of Acountants was formed in
1917 under that name. The significance is not in the number of
rules or their increase from eight to nineteen, but rather in their
exemplification of the importance of ethics for a new profession. It
should be remembered that in 1917 all of the states did not yet
have C.P.A. laws.
The rules of professional conduct of the American Institute of
Accountants as approved by the council of the Institute were as
follows:
AMERICAN INSTITUTE OF ACCOUNTING
Rules of Professional Conduct
Prepared by the Committee on Professional Ethics and approved by the Council
April 9, 1917.
(1) A firm or partnership, all the individual members of which are members
of the Institute, may describe itself as "Members of the American Institute of
Accountants," but a firm or partnership, all the individual members of which
are not members of the Institute, or an individual practising under a style
denoting a partnership when in fact there be no partner or partners, or a
corporation, or an individual or individuals practising under a style denoting a
corporate organization, shall not describe themselves as "Members of the Ameri-
can Institute of Accountants."
(2) The preparation and certification of exhibits, statements, schedules, or
other forms of accountancy work, containing an essential mis-statement of fact,
or omission therefrom of such a fact as would amount to an essential mis-
statement shall be, ipso facto, cause for expulsion, or for such other discipline
as the Council may determine, upon proper presentation of proof that such
mis-statement was either wilful or was the result of such gross negligence as to
be inexcusable.
(3) No member shall allow any person to practice in his name as a public
accountant who is not a member of this Institute, or in partnership with him or
in his employ on a salary.
256 History of Public Accounting
(4) No member shall directly or indirectly allow or agree to allow a com-
mission, brokerage, or other participation by the laity in the fees or profits of
his professional work, nor shall he accept directly or indirectly from the laity
any such commission, brokerage or other participation for professional or com-
mercial business turned over to others as an incident of his services to clients.
(5) No member shall engage in any business or occupation conjointly with
that of a public accountant, which in the opinion of the Executive Committee
or of the Council is incompatible or inconsistent therewith.
(6) No member shall certify to any accounts, exhibits, statements, schedules
or other forms of accountancy work which have not been verified entirely under
the supervision of himself, a member of his firm, one of his staff, a member of
this Institute or a similar association of good standing in foreign countries
which has been approved by the Council.
(7) No member shall take part in any effort to secure the enactment, altera-
tion, or amendment of any state or federal law, or any regulation of any gov-
ernmental or civic body, affecting the practice of the profession without giving
immediate notice thereof to the Secretary of the Institute, who in turn shall at
once advise the Executive Committee or the Council.
(8) No member shall directly or indirectly solicit the clients nor encroach
upon the business of another member, but it is the right of any member to give
proper service and advice to those asking such service or advice.
Enforcement of Professional Ethics
There have been nine significant opinions on professional ethics
since December, 1956. The American Institute's Committee on
Professional Ethics is, and has been, active in the development of
professional ethics and conduct for certified public accountants.
The opinions of the Trial Board are on various subjects, ranging
from newsletters, publications, and confidence of a client to shar-
ing of fees and distribution of literature. The nine recent decisions
of the Trial Board are briefly reported here to show the range of
activities of the Committee on Professional Ethics. Without pro-
fessional standards there can be no real recognition as a profession.
The opinions follow:
Public Accounting in the United States During 1950's 257
COMMITTEE ON PROFESSIONAL ETHICS
Numbered Opinions
Opinion No. 1
Newsletters, Publications
Impropriety of member furnishing clients and others with tax
and similar booklets prepared by others and imprinted with
firm name of member.
In the opinion of the committee, imprinting the name of the accountant on
newsletters, tax booklets or other similar publications which are prepared by
others and distributed by a member of the Institute does not add to the use-
fulness of the material to the reader. Use of the imprint, in the committee's
opinion, is objectionable in that it tends to suggest (and has been interpreted
by many as a means of) circumventing Rule 10 of the rules of professional
conduct, which says that a member shall not advertise his services.
It is the conclusion of the committee that distribution of newsletters, tax
booklets or similar publications, prepared by others, when imprinted with the
name of the accountant furnishing the material, is not in the interest of the
public or the profession.
The committee sees no grounds for objection to furnishing material of the
type indicated to clients or others provided that such material does not carry
the imprint described and provided that such distribution is limited in a man-
ner consistent with Rule 7.
(Published in The CPA, December 1956)
Opinion No. 2
Responsibility of Member for Acts of
Third Parties on His Behalf
Member may not carry out through others, acts which he is
prohibited from directly performing under Institute by-laws
and rules of professional conduct.
A member should not cause others to carry out on his behalf either with or
without compensation acts which, if carried out by a member, would place him
in violation of the Institute's rules of professional conduct if, with his approval:
1. A nonprofit organization in recognition of accounting services which had
been rendered by a member placed without charge an advertisement of
the firm in the organization's bulletin;
258 History of Public Accounting
2. A bank announced to its depositors that a CPA would be at a desk on
the main floor of the bank at certain hours and days during the tax season
to assist customers in preparation of tax returns for a fee;
3. A trade association in its official publication announced that a certain
certified public accountant, member of the Institute, who long had served
the association as independent accountant, was especially well qualified
and available to assist association members in dealing with accounting and
tax problems peculiar to the industry.
(Published in The CPA, December 1956)
Opinion No. 3
Confidence of a Client
Seller of accounting practice should not give the purchaser
access to working papers, income tax returns, and correspond-
ence pertaining to accounts being sold without first obtaining
permission of client.
The seller of an accounting practice has a duty under Rule 16, pertaining
to confidential relations, first to obtain permission of the client to make avail-
able to a purchaser working papers and other documents.
(Published in The CPA, January 1957)
Opinion No. 4
Authorship— Propriety of Showing
Firm Affiliation of Author
Responsibility of author for publisher's promotion efforts.
Many certified public accountants, members of the Institute, are especially
well qualified to write authoritatively on accounting, taxes, auditing, manage-
ment and related subjects, and in the interests of the public and the profession
are encouraged to write under their names articles and books for publication.
In the opinion of the committee it is of value to the reader to know the
author's background (degrees he holds, professional society affiliation, and the
firm with which he is associated) . It is held that publication of such informa-
tion is not in violation of Rule 10.
It is the opinion of the committee that an author who is a member of the
Institute has the responsibility to ascertain that the publisher or others pro-
moting distribution of his work keep within the bounds of professional dig-
Public Accounting in the United States During 1950' s 259
nity and do not make claims concerning the author or his writing that are not
factual or in good taste.
(Published in The CPA, February 1957)
Opinion No. 5
Prohibited Self-Designations—
Use of Title "Tax Consultant,"
"Tax Specialist," or Similar
Description Forbidden
The "Statement of Principles Relating to Practice in the Field of Federal
Income Taxation, Promulgated in 1951 by the National Conference of Lawyers
and Certified Public Accountants," was approved by the Institute's Council.
Section 5 of this statement reads as follows:
"5. Prohibited Self-Designations. An accountant should not describe him-
self as a 'tax-consultant' or 'tax expert' or use any similar phrase. Law-
yers, similarly, are prohibited by the canons of ethics of the American
Bar Association and the opinions relating thereto, from advertising a
special branch of law practice."
Under Article V, Section 4, of the Institute's by-laws a member renders him-
self liable to expulsion or suspension by the trial board if he refuses to give
effect to any decision of the Institute or the Council.
It is the opinion of the committee that a reasonable period of time has
elapsed since the adoption of the Statement of Principles by Council within
which the members could revise their stationery, directory and other listings so
as to conform with the Statement.
(Published in The CPA, March 1957)
Opinion No. 6
Concept of "Laity" in Sharing of Fees
Concept of laity as used in Rule 3, interpreted to prohibit shar-
ing of fees, profits, or commissions with others not in public
practice; propriety of joint services.
Rule 3 provides that: "Commissions, brokerage, or other participation in
the fees or profits of professional work shall not be allowed directly or indirect-
ly to the laity by a member.
260 History of Public Accounting
"Commissions, brokerage, or other participation in the fees, charges, or
profits of work recommended or turned over to the laity as incident to ser-
vices for clients shall not be accepted directly or indirectly by a member."
There has been no precise definition of the word "laity" as used in Rule
3, and it is the belief of the committee that no useful purpose would be ac-
complished by attempting to establish a special definition for use solely with-
in the accounting profession which would include certain non-accounting
professional groups and exclude other such groups. It is the view of the com-
mittee that Rule 3 should be interpreted as intending to prohibit a mem-
ber in public practice from receiving or paying a commission or sharing a
fee with any individual or firm not engaged or employed in the practice of
public accounting.
Rule 3 is not intended to apply to payments to a retired partner of a pub-
lic accounting firm or to the heirs of a deceased partner or of a deceased
member. Also in view of the fact that the term "laity" has not been authori-
tatively defined, the committee feels it would be unreasonable to apply its present
interpretation to arrangements made in good faith and already existing between
certified public accountants and individuals not presently in the practice
of public accounting. It is the hope of the committee that within a reasonable
time Rule 3 may be amended so as to clarify the word "laity" by referring
instead to any individual or firm not engaged or employed in the practice
of public accounting. In the meantime an understanding of, and voluntary
compliance with, the committee's views should facilitate the transition.
The committee believes there is nothing contrary to the public interest
or in violation of the rules of conduct in a firm of certified public account-
ants coordinating its work with that of an engineering, legal or other pro-
fessional firm on a specific project for a single client. In such cases care
should be taken by the accounting firm not to extend its services beyond its
particular field and that any reports or recommendations rendered make
clear the limitation of responsibilities assumed and services rendered.
Neither Rule 3 nor any of the other Institute rules of professional conduct
at present prohibit a partnership by a member of the Institute in public
practice with a person who is not a certified public accountant. The com-
mittee, however, looks forward to the day when such public accounting
partnerships will be composed solely of certified public accountants.
(Published in The CPA, January 1958)
Opinion No. 7
Statistical Tabulating Services
The committee on professional ethics has, in recent years, responded to sev-
eral inquiries in regard to the possible violation of the Institute's rules of
Public Accounting in the United States During 1950's 261
professional conduct by members who operate statistical tabulating service
bureaus.
In practically all cases the tabulating services include or contemplate the
accumulation of data to be used for accounting purposes, the maintenance of
accounts, and bookkeeping services. This type of service is similar to so-called
"write-up work" or bookkeeping service rendered by many public accountants.
Some members have formed separate partnerships which perform statistical
tabulating services. Some of these organizations were apparently formed under
the erroneous impression that the Institute's rules of professional conduct
would not be applicable.
The committee finds it is proper for members to conduct statistical tabulating
service bureaus. The committee holds, however, that any such separate organ-
ization in which a member has an interest should not be permitted to do
things which the member in public practice is prohibited from doing as a
member of the Institute, such as advertising, soliciting business, or practicing
in corporate form.
It is the opinion of the committee that any member of the Institute who
has any interest in an organization which renders statistical tabulating ser-
vices is either directly or indirectly rendering the "type of service commonly
rendered by public accountants" and, therefore, must observe the by-laws and
Rule 15, which requires compliance with all of the rules of professional
conduct of the Institute.
(Published in The CPA, December 1958)
Opinion No. 8
Denial of Opinion Does Not Discharge
Responsibility in All Cases
Where the CPA believes financial statements contain false or
misleading information, mere denial of opinion held in-
sufficient.
Rule 5 deals with a member's responsibilities in expressing an opinion on
representations in financial statements. The rule does not, however, specifical-
ly refer to situations where an opinion is denied, either by disclaimer or by
reference to the statements as "prepared without audit." When an accountant
denies an opinion on financial statements under Rule 19, which incorpo-
rates the provisions of Auditing Statement 23, he is in effect stating that he
has insufficient grounds for an opinion as to whether or not the statements
constitute a fair presentation. Rule 19 provides that where an opinion is
denied, the accountant must indicate clearly his reasons therefor.
In a circumstance where a member believes the financial statements are false
or misleading as a whole or in any significant respect, it is the opinion of the
262 History of Public Accounting
committee that he should require adjustments of the accounts or adequate
disclosure of the facts, as the case may be, and failing this the independent
accountant should refuse to permit his name to be associated with the state-
ments in any way.
(Published in The CPA, February 1959)
Opinion No. 9
Distribution of Literature
There has come to the attention of the committee with increasing fre-
quency printed material bearing a member's name and address or that of
his firm, which is devoted either to informing others of the services the mem-
ber of his firm is prepared to render or dealing with a specialized subject in
a manner that might suggest the firm's ability to serve in a specialized field
or geographical area.
The committee feels that such material is entirely proper when its distribu-
tion is carefully restricted to clients, but that failure to control the circulation of
such literature directly or through third parties may place the member whose
name it bears in violation of Rule 10 of the Institute's rules of professional
conduct prohibiting advertising.
The committee believes that a member who produces any literature, or
material which may be considered promotional in nature, must assume respon-
sibility to guard and control its distribution. It is recognized by the committee
that in isolated cases a client, not knowing the profession's restrictions on the
distribution of such material, may pass on to the client of another member
material he found of interest. Such an isolated instance would not necessarily
be viewed as unethical practice. Where there is evidence that reasonable con-
trol has not been maintained to limit distribution of such material, it is the view
of the committee, that it must, in the interest of the profession, strictly en-
force both the spirit and the letter of Rule 10, which provides "A member
shall not advertise his professional attainments or services. . . ."
Accountant's Legal Responsibility
An Illinois appeals court has revised a trial court decision and
found a C.P.A. firm negligent for failure to detect defalcations
during its audit of a client's books.
In Cereal Byproducts Company v. Roy Hall, J. Leonard Penny,
et al., appealed in January, 1956 to the Appelate Court of Illinois,
First Division, the conduct of the C.P.A. defendants in the con-
firmation of accounts receivable was characterized as "inexcusable
negligence for which defendants are liable."
Public Accounting in the United States During 1950's 263
The C.P.A.'s failed to confirm 29 accounts receivable totaling
$28,964 in 1957. Plaintiff charged breach of contract and negligence
and carelessness in the audit. Justice Niemeyer said:
Although the discovery of defalcations is not in most cases the objective
of an ordinary examination of books, it is necessary that certain examina-
tions or checks be made which would show defalcations before the auditor
could render an opinion on the balance sheets and financial statements as
showing the worth of the firm whose books are examined. 68
Securities and Exchange Commission's Influence
The Securities and Exchange Commission announced the deci-
sion on October 31, 1952 suspending the public accounting firm of
Haskins & Sells, because of the Thomascolor case, and one of its
partners, Andrew Stewart, individually, from appearing or practic-
ing before the commission for a period of ten days, effective Novem-
ber 29, 1952.
The basis for the decision was a finding by the Commission that
the financial statements prepared and certified by the respondents
and included in the registration statement filed by Thomascolor,
Incorporated, were defective.
The Commision stated in the findings:
. . . respondents' accounting treatment and disclosures were materially inade-
quate and the financial statements certified by them were materially mislead-
ing in important respects. Those deficiencies resulted directly from respondents'
failure to follow generally accepted accounting and auditing principles and
practice and professional standards, and rules, regulations and prior decisions
of this Commission. 09
The deficiencies in the financial statements of the Thomascolor
Case related primarily to a $2,014,941.03 item in the balance sheet,
68 News Report, "Accountants Found Negligent." The Journal of Accountancy, CI (April, 1956), 5.
6!) Orncial Decisions & Releases, "SEC Accounting Series Release No. 73: The Thomascolor Case,"
The Journal of Accountancy, XCV (January, 1953), 83.
264 History of Public Accounting
captioned "Patents and Patent Applications," which represented all
but $536,642.37 of the company's assets. The Commission noted
that the public was being asked by Thomascolor, Incorporated, to
invest $10 million in a "highly speculative venture" against a back-
ground of a long history of attempts to develop and exploit inven-
tions in color photography which had involved the expenditures of
large sums of money without any evidence of commercial success.
The Commission further stated:
It was against this background that respondents prepared and certified
balance sheets which grossly overstated intangible assets by the arbitrary use
of the par and stated value of shares of stock issued to acquired the assets,
including shares expected to be reacquired from promotions as a donation,
and attributed to apparently potentially productive items material amounts
which should have been shown as promotion services. 70
In its Findings and Opinion the Commission accepted Haskins &
Sells' assertion that they acted in good faith, and accordingly did not
find any willful or deliberate disregard of its rules or accepted ac-
counting practice. The suspension of Haskins Sc Sells by the Com-
mission was the first instance in the history of the S.E.C. that dis-
ciplinary action has been based on differences of judgment as to
proper accounting treatment.
It was the opinion of Haskins & Sells that it was proper to carry
this item (Patents and Patent Applications), at the amount stated
because, among other things, it resulted from a series of transac-
tions involving substantial elements of arm's-length bargaining, and
that there was adequate disclosure in the balance sheet and foot-
notes concerning this item. 71
Dangerous Precedent Set by S.E.C.
The October, 1956 suspension of Haskins & Sells from practic-
ing before the Commission for a period of ten days established a
dangerous precedent.
™Ibid., p. 83.
"Official Releases & Decisions, "Comment Released by Haskins & Sells," The Journal of Accountancy,
XCV (January, 1953), 85.
Public Accounting in the United States During 1950's 265
The basis for the suspension under Rule II (e) of the Commis-
sion's Rules of Practice is stated to be that the respondent's account-
ing work was so deficient
as a result of their failure to give this professional undertaking the degree of
care and inquiry it demanded under the circumstances, that disciplinary action
is required. 72
The specific provision of Rule II (e) under which the suspension
was made was ''improper professional conduct."
During the hearing three C.P.A.'s, two of them past presidents of
the American Institute, testified as expert witnesses, without con-
tradiction, that the accounting treatment complained of by the
Commission was proper.
The record shows that the balance-sheet on which the complaint
was based was amended before acceptance by the Commission, so
that the original financial statements to which they took exception
were never issued to the public. Furthermore, the time period for
the processing of the complaint was as follows: the original state-
ments were filed in 1947, the disciplinary proceedings against Has-
kins & Sells were begun in 1948, the final arguments were given in
1950, and the Commission issued the suspension order two and one
half years later.
Regarding the suspension, the editors of The Journal stated:
This decision, we believe, constitutes a dangerous precedent for all account-
ants who may certify statements filed with the S.E.C. Any accountant certifying
such a statement may be disciplined for improper professional conduct, regard-
less of his good faith and competence, if the Commission disagrees with the ac-
counting treatment of any important item. . . . Demonstration of substantial au-
thoritative support for the accounting procedure originally followed provides
no protection— the Commission regards as final its own judgment of what is
sound accounting.
72 Editorial, "Suspension of Accountants by SEC a Dangerous Precedent," The Journal of Accountancy,
XCV (January, 1953), 33.
266 History of Public Accounting
In these circumstances the S.E.C. occupies not only the position of prosecutor,
judge, and jury, but by asserting its authority to decide, regardless of evidence,
what is and what is not proper accounting, it also takes over the function of
legislator of the "law of accounting." 73
C.I.T. Case— Liability to Third Parties
The decision of the United States Court of Appeals for the Sec-
ond Circuit in this case of C.I.T. Financial Corporation U.P.W.R.
Glover et al., was a crucial decision on accountants' liability. The
suit was brought against a number of individuals who were partners
in the firm of Barrow, Wade, Guthrie & Co., which was a national
firm of certified public accountants.
The plaintiff in the case was not a client of the accountants but a
creditor of the client. The case involved an attempt to broaden the
scope of accountants' liability to third parties for mere negligence. 74
A unanimous verdict on all counts in favor of the former account-
ing firm of Barrow, Wade, Guthrie & Co. was returned by the Fed-
eral District Court.
The plaintiff in the action was the C.I.T. Financial Corporation,
which loaned $1.5 million in 1945 to another commercial finance
company, the Manufacturers Trading Corporation, with headquar-
ters in Cleveland. The borrower, M.T.C., became involved in
financial difficulties in 1948 and was finally adjudicated bankrupt
in 1950.
The complaint in the court action alleged that the loan had been
made in 1945 in reliance upon the audit reports of the defendants,
Barrow, Wade, Guthrie & Co., and that, during the life of the
loan, there had been further reliance upon semi-annual audit re-
ports, all of which were alleged to have been inaccurate and mis-
leading in material respects.
The opinion of the certified public accountants was qualified
in each report and the auditors disclaimed any responsibility for the
valuation or collateral held by their client in connection with the
commercial receivable appearing in the balance sheet. 75
The plaintiff-appellant contended that their accountants knew
that their reports would be relied upon by this creditor and that
™Ibid., p. 34.
7 *Saul Levy, "The C.I.T. Case," The Journal of Accountancy, C (October, 1955), 31.
75 News Report, "Accounting Firm Upheld," The Journal of Accountancy, XCVII (May, 1954), 520.
Public Accounting in the United States During 1950's 267
this specific identification of the third party was sufficient to sup-
port the claim asserted in the third cause of action, though it in-
volved negligence rather than fraud.
The Court of Appeals in its opinion stated:
The jury went on, however, to find that defendants' representations had not
been negligently false or misleading, and this second finding alone bars re-
covery on this count. 76
The plaintiff, C.I.T., who had loaned M.T.C. $1.5 million,
claimed that defendants' auditors were totally inadequate for fail-
ure to disclose overvaluation of loans to debtors. The plaintiff
argued that defendants should have pointed out the necessity for
larger reserves due to the stagnancy of certain collateral, and due to
its concentration in certain types of merchandise and in certain
individual debtors. Further, reference was made to alleged mis-
classification of particular items as accounts receivable, rather than
inventory loans.
The defense relied on the special nature of M.T.C.'s business
and on plaintiff's knowledge of this. Defendants maintained that
M.T.C, in its financial transaction, had always relied primarily on
the borrower's collateral, rather than on his financial condition.
The auditors claimed that they had never asserted their own special
competence to make such appraisals, but that they had inserted in
their audit reports appropriate disclaimers qualifying their general
assertions about M.T.C.'s financial stability. Further, the account-
ants claimed that M.T.C.'s business was such that the accountants
had to rely to a great extent on management statements about the
nature and the value of the collateral, and that, since the audit
reports disclosed this reliance, defendants were not liable for what-
ever factual errors might have occurred.
Each of the audit reports of the public accounting firm had a
disclaimer in these or similar words:
While it was not within our province to pass upon or assume responsibil-
ity for legal or equitable title to the commercial receivables purchased by the
78 Saul Levy, "The C.I.T. Case," The Journal of Accountancy, C (October, 19SS), 32.
268 History of Public Accounting
companies or the valuation of any security thereto accepted and held by them,
it was apparent from their books and records and by opinion of counsel, that
their contractual and assignment forms are adequate for their legal protection
in connection with the collection and liquidation of commercial receivables
purchased. 77
The final paragraph of the decision of the United States Court
of Appeals was as follows:
Plaintiff argues vigorously the importance of this case in holding accountants
in strict liability for their audits, and, in effect, for increasing that liability.
But we do not believe we should attempt to go beyond the standards of the
market place, as reflected in current judicial decisions. So when, after a fair
and carefully conducted trial under the function of the courts should be con-
sidered fulfilled. Judgment affirmed. 78
S.E.C. Criticizes Report
The Securities and Exchange Commission permanently sus-
pended the Regulation A exemption of the Coastal Finance Com-
pany and criticized its certified public accountants, O'Connell and
Company of Silver Springs, Maryland, for an "inaccurate and mis-
leading" report.
The Commission's action, announced on April 10, 1957, was
taken on the grounds that a stock offering circular issued by Coastal
Finance contained false and misleading information, failed to dis-
close transactions with and securities held by officers and directors,
and misleadingly represented that the public accountants' examin-
ation was in accordance with generally accepted auditing standards.
O'Connell and Company's certificate, dated August 3, 1955, cov-
ered Coastal's financial statements for the six months period end-
ing June 30, 1955. The Commission charged that O'Connell had
not examined the company's field officers during the period, and
had not audited a new office which Coastal acquired in February,
1955. The accounting firm was said to have performed only book-
keeping at Coastal's home office.
tVbid., p. 42.
™Ibid., p. 42.
Public Accounting in the United States During 1950's 269
The Commission said that when O'Connell made a routine audit
of one of Coastal's offices on August 16, 1955, after the date the
certificate was issued, it discovered evidence of improper renewals
of delinquent loans to prevent their being charged off as a bad
debt. After a special audit by O'Connell, revised figures were is-
sued for the August 3 report which showed a $128,130 operating
loss, compared to an operating profit of $107,695 shown in the
financial statement in the stock offering circular. 79
S.E.C. —Seaboard Case
On March 28, 1957, the Securities and Exchange Commission
temporarily suspended Touche, Niven, Bailey & Smart, C.P.A. firm,
and two of its partners from practice before the Commission for a
fifteen-day period effective May 1, 1957. The decision, issued pur-
suant to Rule II (e) of the Commission's Rules of Practice, was
based in findings of improper professional conduct in connection
with the firm's certification of financial statements of Seaboard
Commercial Corporation for 1947 which were included in Sea-
board's annual report for 1947 filed with the Commission pursuant
to the Securities Exchange Act of 1934.
Seaboard was a commercial finance company, but by the end of
1947 its financial condition had drastically changed as a result of
the concentration of its funds in six companies, all of which had
experienced increasingly serious financial difficulties in 1946 and
1947. The Commission found, among other things, that the $857,729
reserve for losses and contingencies in Seaboard's certified balance
sheet was materially inadequate, and that the respondents in certi-
fying to statement including this reserve failed to follow generally
accepted accounting and auditing standards and failed to exercise
an independent and informed judgment. It was noted that the
senior in charge of the field work for Touche, Niven, Bailey &
Smart, had estimated, at the conclusion of his work, that a reserve
of $1,453,551 was required. Thereafter the partner in charge of
the audit, following a conference with management, had arrived at
an estimated reserve of $1,345,000 and a draft certificate used by
the respondent after several meetings with Seaboard's management
referred to a need for a reserve of $1,345,000.
79 News Report, "S'EC Criticizes CPA's Report," The Journal of Accountancy, Oil (June, 1957), 13.
270 History of Public Accounting
The Commission found that the respondents, Touche, Niven,
Bailey & Smart, improperly deferred to management's wishes in
deleting from their certificate language indicating the financial con-
dition of Seaboard's major accounts. The inadequate addition to
the reserve of $750,000 was not charged to income, notwithstanding
that an addition to the reserve was necessitated by developments
during 1947. Had the $750,000 addition to the reserve been charged
to income, Seaboard's net income of almost $250,000 would have
been converted to a net loss of approximately $500,000.
The suspension of Touche, Niven, Bailey & Smart took place
nine years after the audit report of the Seaboard Commercial Cor-
poration. The partners suspended were William W. Werntz and
Henry E. Mendes, who retired from active practice in 1950. The
Commission did not institute -the proceedings against Touche,
Niven, Bailey & Smart until 1952, after Thomas W. Brown, the
partner in charge of the audit, had died. The burden of the de-
tails of the audit fell on William W. Werntz, Brown's assistant.
Werntz was not admitted to partnership in the firm until 1950.
Seaboard's own balance sheet at the year end of 1947 carried a
reserve against losses of $107,000 and all of its advances to debtors
were carried on the balance sheet as current assets. The audit firm's
regular procedures disclosed not only the concentration of receiv-
ables in a small number of accounts but also the possibility that
serious losses would be sustained. It was, therefore, determined to
undertake supplementary audit procedures to develop and to ob-
tain a more detailed knowledge of the debtor companies. The
additional audit procedures convinced the auditors that substantial
additional reserves for losses would be required and that a con-
siderable portion of the receivables classified as current should be
reclassified as noncurrent. The management of Seaboard vigorously
denied this and insisted that the loan would be worked out without
loss, or with losses not exceeding the reserve which Seaboard had
itself established. The public accounting firm refused to certify
the balance sheet as presented because, in their judgment, the
reserves were inadequate and the current assets overstated. With
the establishment of a reserve of $857,000 and the reclassification
of approximately $1 million in receivables, a certificate was signed
by the auditors.
The auditors stated, in regard to the case, that ". . . the case should
be sent back with instructions that it should be heard again with
Public Accounting in the United States During 1950 's 27 1
hindsight evidence excluded. . . ." Subsequent to 1947, the Seaboard
Company was liquidated with substantial losses. 80
T. N. B. & S. Statement on the Seaboard Case
The audit of the Seaboard Company occurred during the first
audit season of the new firm of Touche, Niven, Bailey & Smart.
Thomas W. Brown was the only member of the firm familiar with
Seaboard's affairs, and it was not until after his death in 1950 that
the Commission instituted the proceedings. Thus the burden of
defending Brown's decision fell on William Werntz, who had been
his assistant, and had shortly before joined one of the constituent
firms in the merger as an employee, after serving for nine years as
chief accountant for the Securities and Exchange Commission. He
did not become a partner until 1950.
Seaboard's own balance sheet at the year end of 1947 carried a re-
serve against losses of $107,000 and all of its advances to debtors were
carried on the balance sheets as current assets. After undertaking
supplementary audit procedures, Touche, Niven, Bailey & Smart
concluded that a substantial addition to the reserve for losses would
be required and that a considerable portion of the receivables was
improperly classified as current assets and should be reclassified as
noncurrent receivables. Seaboard management vigorously denied
this and insisted that the loans would be worked out without loss,
or with losses not exceeding the reserves which Seaboard had itself
established.
At the conclusion of a series of conferences during which man-
agement insisted that the accounting firm was being harshly pessi-
mistic, the auditors made three stipulations: a reserve of $857,000,
the exclusion from current assets of approximately $1 million of
receivables from debtors and a subsidiary, and the disclosure in a
footnote that $3,158,000 of receivables were due from three cus-
tomers, if the auditors were to give an unqualified opinion on
Seaboard's financial statements. These conferences extended over a
period of two weeks and were held with the president of the com-
pany, the executive vice-president, and other officers of Seaboard.
^Official Releases, "Official Summary of SEC Accounting Studies Release Number 78 and Statement
of Touche, Niven, Bailey & Smart," The Journal of Accountancy, CIII (June, 1957), 62.
272 History of Public Accounting
Management finally agreed and the balance sheet was changed
accordingly.
Seaboard's banker creditors became very disturbed upon the re-
ceipt of the audit report with the disclosure of the increase in the
reserve for losses to $857,000, the reclassification of approximately
$1 million of receivables as noncurrent assets, and the concentration
of loans in a few debtors. In the words of one of the banker creditors,
the audit report had "certainly hung out all the red flags." 81
Atlas Plywood Story
Fortune in January, 1958 aroused considerable comment by rais-
ing a number of questions about the Atlas Plywood Corporation.
The dispute arose regarding the determination of the operating loss
of $10,818,645, of Atlas Plywood, including special charges against
income of $6,300,000. In January, 1957 a new management assumed
control of Atlas Plywood and terminated the engagement of Peat,
Marwick, Mitchell & Co. as auditors, engaging Arthur Andersen &
Co. instead. In its opinion on the 1947 financial statements Arthur
Andersen & Co. stated:
We are not in a position to determine what portion of the net loss includ-
ing special charges for the year ended June 30, 1957, should be attributed to
prior years. . . . 82
A year later, on July 23, 1958, the treasurer of Atlas Plywood
wrote to the senior partner of Peat, Marwick, Mitchell & Co., with
the knowledge and written approval of his board of directors, that
the procedures followed by the auditors "... would not in any way
indicate improper auditing or reporting by Peat, Marwick, Mitchell
& Co., in connection with their examinations of these companies."
In the opinion accompanying the June 30, 1958 financial statements
Arthur Andersen & Co. stated:
81 S>tatement of Touche, Niven, Bailey & Smart, With Respect to the Decision of the Securities
and Exchange Commission in the Seaboard Commercial Corporation Proceedings, p. 3.
^Editorial, "Conclusion of the Atlas Plywood Story," The Journal of Accountancy, CVI (November,
1958), 32.
Public Accounting in the United States During 1950 's 273
. . . the results of its operations included special charges for the two years then
ended, and were prepared in conformity with generally accepted accounting
principles applied on a basis consistent with that of the preceding year.
As Peat, Marwick, Mitchell & Co. said in a statement issued in
1958, this is a "clean" certificate, and it
confirms that the losses, including special charges, reported in 1957 were attri-
butable to that year— not to previous years. Thereby, it substantiates without
equivocation Peat, Marwick, Mitchell & Co.'s certification of the balance sheet
at June 30, 1956.83
In the opinion of the editor of The Journal,
The incident emphasizes once again the urgency of better public information
about the nature of accounting and auditing, and the responsibilities of man-
agement, as well as auditors, for the representations in financial statements. 84
Use of C.P.A. Title by Partnerships
A tabulation by the American Institute of state law provisions
regarding the use of the C.P.A. title or term "certified public ac-
countants" by partnerships was gathered from the Accounting Law
Reporter of the Commerce Clearing House. These laws sometimes
require that titles other than C.P.A. be used on audit certificates.
Many C.P.A. firms cannot use "C.P.A.'s" on their letterheads and
firm title in some states. Some 12 million stockholders receive re-
ports containing opinions of "Accountants and Auditors" or "Pub-
lic Accountants," not Certified Public Accountants. This is a sig-
nificant public relations loss to the C.P.A.'s. The following shows
the results of the survey of the Accounting Law Reporter:
^Ibid., p. 34.
^Ibid., p. 34.
274
History of Public Accounting
STATE LAW PROVISIONS REGARDING THE USE OF THE
CPA TITLE BY PARTNERSHIPS
Require each partner of a firm to
possess a CPA certificate of that state
# Arizona
Delaware
District of Columbia
# Florida
# Georgia
Indiana
#Iowa*
# Louisiana
Maine
# Maryland
Massachusetts
# Michigan
# North Carolina
North Dakota
Oklahoma
South Carolina**
South Dakota
# Tennessee
#Virginia
Require each partner personally en-
gaged within the state; each resident
manager in charge of an office in the
state to be CPAs of that state, and
each non-resident partner to be a
CPA of some state
# Colorado
Minnesota
# Missouri
Pennsylvania
# Wisconsin
Require all members personally en-
gaged or practicing within the state
to be CPA's of that state
#Alaskaff
# Illinois
New Hampshire
#New Mexico
#Utah
#West Virginia
*Not a statutory requirement. Provided for in Regulations.
**Not a statutory requirement. Provided for in Board Code of Ethics.
fDoes not require each resident manager to be a New York CPA.
-j-|-Not a statutory requirement. Provided for in Regulations. Non-resident part-
nerships also provided for in Regulations requiring each partner to have
essential qualifications that would qualify him for practice in Alaska.
# States with regulatory public accounting laws. 85
85 Letter from Roderic A. Parnell, to Secretaries of the State Boards of Accountancy.
Public Accounting in the United States During 1950's
275
Require at least one general partner;
each partner personally engaged with-
in the state; each resident manager in
charge of an office in the state, to be
CPA's of that state, and each non-
resident partner to be a CPA of some
state
# California
# Connecticut
Kansas
# Kentucky
# Nebraska
# Nevada
#New Yorkf
#Ohio
# Oregon*
# Texas
# Washington
# Puerto Rico
# Virgin Islands
Have no provision regarding the use
of the title "CPA" by firms within
their borders, but do restrict its use
by individuals
Alabama
Arkansas
# Hawaii
Idaho
# Mississippi
Montana
New Jersey
Rhode Island
# Vermont
Wyoming
Certified Public Accountants and Lawyers Conflict:
The Conway Case
The decision of the Supreme Court of Minnesota in The Matter
of Ramsey County Bar Association v. Conway was of one of the
major decisions on the subject of unauthorized practice of law in
the field of income taxation.
The Conway case decision held that the defendant was engaged
in the practice of law when he advised a client on whether he was
in partnership with his wife, whether his common-law wife entitled
him to claim an exemption for her, and certain other questions. A
private investigator employed by the Unauthorized Practice of Law
Subcommittee of the Ramsey County Bar Association, using an as-
sumed name, approached Conway with a hypothetical tax problem,
apparently calculated to tempt Conway into the rendering of services
upon which plaintiff hoped later to prosecute him. Conway, ap-
276 History of Public Accounting
parently believing the investigator to be a bona fide client, under-
took to advise him. 86
In this case the defendant was found to have engaged in the
practice of law in that he
advised and determined for the taxpayer whether the latter had attained the
status of lawful marriage with a woman with whom he had been living but
to whom he had never been ceremonially married. He further gave advice as to
whether such taxpayer and his consort should file separate or joint returns. 87
This decision appears to be slightly at variance with the Bercu
case, which generally has been understood to mean that an account-
ant can properly advise on questions of law if they are incidental to
his regular work as an accountant. The Minnesota court stated
that the "incident" test is of no value except in a negative sense;
that legal service is the practice of law unless it is incidental to the
regular calling of a nonlawyer furnishing such service, but the
mere fact that it is incidental is not decisive; and that when this
service involves advice or a decision on difficult or doubtful legal
questions, it is the practice of law whether incidental or not.
The editors of The Journal stated:
As a matter of fact, the court's opinion appears at no point to be in direct
opposition to the Statement of Principles. The opinion must be appraised in
the light of the fact that the defendant was not a certified public accountant.
His lack of professional qualifications was stressed throughout the litigation. 88
Agran Case
The editors of The Journal expressed the apparently inescapable
conclusion that a purposeful minority within some of the bar associa-
tions was making a conscious effort to take away from accountants
^Current Notes, "Decision in Conway Appeal Holds Tax Consultant Practiced Law," The Journal
of Accountancy, XCII (August, 1951), 135.
87 Editorial, "The Conway Decision," The Journal of Accountancy, XCII (September, 1951), 289.
^Ibid., p. 290.
Public Accounting in the United States During 1950' s 211
a substantial part of the tax practice in which they had traditionally
engaged, and make it a monopoly for lawyers, whether taxpayers
want lawyers to serve them or not.
This position was arrived at in reaction to a June, 1954, decision
of an appellate court in California, which held that a C.P.A., Reu-
ben Agran, enrolled to practice before the U. S. Treasury Depart-
ment, had invaded the field of "unauthorized practice of law" in
settling a regular client's federal income tax liability with the In-
ternal Revenue Service.
The views of the California State Bar's Committee on the Un-
authorized Practice of Law on the proper functions of the account-
ant in income tax practice were clearly stated in a report issued in
the fall of 1953, which said in part:
No accountant except one who is an employee of the taxpayer (as distin-
guished from an independent contractor) may advise as to the Income Tax
effect or consequences of a transaction or transactions already completed or
contemplated by the taxpayer.
Upon the instigation of an audit, it is recommended that an accountant
should advise the retention of an attorney; and upon the issuance of a 30-day
letter by the Treasury Department, an accountant shall do nothing further
in the matter except under the supervision of and in aid of an attorney. 89
On various occasions, other state bar associations (e.g. Massachu-
setts, Illinois, New York, Minnesota, and Florida) supported sub-
stantially the same views.
The case in question arose when Reuben Agran, a C.P.A. hold-
ing a Treasury card, handled federal income tax matters for clients,
as C.P.A.'s have done since the income tax was first levied. One of
his clients refused to pay for such services, so Agran sued for the
fee. The trial court awarded Agran the full amount of the claim.
On appeal by the client and in the appellate court the Cailfornia
State Bar intervened, claiming that Agran had engaged in the
"unauthorized practice of law" in settling a tax difference with an
^Editorial, "CPAs' Tax Practice Seriously Threatened," The Journal of Accountancy, XCVIII (Aug-
ust, 1954), 161.
278 History of Public Accounting
internal revenue agent involving an operating loss carryback. The
Superior Court of Los Angeles County held that Agran dealt with
a "difficult and doubtful" question of law in that he interpreted
and applied the Internal Revenue Code and related regulations and
decisions in arguing how the loss should be classified for tax pur-
poses.
The following excerpts show where a logical extension of the
appellate court's assumptions had to lead:
For the sake of clarity and for the protection of those dealing with such
matters, only those functions which clearly constitute the practice of law should
be prohibited to the accountant.
A return may be characterized as an "ex parte" declaration by a taxpayer as
to the amount of taxes he owes. If the return is accepted by the Treasury De-
partment no other services by the person preparing the return are required. Up
to this point it would be impossible to determine the extent to which the per-
son preparing the return has relied on his knowledge of law and his know-
ledge of accounting.
Difficulties do not arise until the collecting agency takes the position that
additional taxes are due. . . .
An issue was framed in this matter when an agent from the Treasury De-
partment indicated in connection with an audit of the 1949 return that he
did not agree that the Pritchard transaction was a "net operating loss from
the operation of a trade or business."
No dispute ever arose out of the facts of the Pritchard loss nor of account-
ing matters connected therewith. The only question, as stated before, was as to
the type of loss, purely a question of law. The basic question is whether or not
after the framing of the issues, plaintiff as a certified public accountant could
continue without the assistance of an attorney in his efforts to sustain the posi-
tion previously taken. . . .
A definition which is especially pertinent is found in State ex rel. McKittrick
v. C. 5. Dudley & Co., 102 S. W. 2d 895, 898; 340 Mo. 852: "A person is engaged
in the 'practice of law'; when he, for a valuable consideration, engages in the
business of advising persons, firms, associations or corporations as to their
rights under the law, or appears in a representative capacity as an advocate in
proceedings pending or prospective, before any court, commissioner, referee,
board, body, committee or commission constituted by law or authorized to settle
controversies, and there, in such representative capacity, performs any act or
Public Accounting in the United States During 1950 's 279
acts for the purpose of defending the rights of their clients under the law."
The prime definition of Advocate is given in Webster's New International
Dictionary, Second Edition, Unabridged, as: "One who pleads the cause of an-
other. Specif., one who pleads the cause of another before a tribunal or judicial
court; a counselor."
It has always been assumed that the right to practice law included the ex-
clusive right to appear as an advocate in any type of proceedings where the
rights of a litigant depended on questions of law, particularly the construction
and interpretation of difficult statutory provisions. No other profession but law
requires the training necessary to properly resolve difficult and complex ques-
tions of statutory construction.
The expert witness for defendant testified that in discussion with an agent
from the Collector's office, similar to that testified to by plaintiff, they would
proceed in precisely the same manner and do the same preparatory research as
though the matter were to be tried before a judge. . . .
The public interest may only be protected by a requirement that such efforts
be restricted to attorneys at law.
Based on a consideration of all these matters, this court holds that all serv-
ices performed by plaintiff from the time of the first conference with the agent
from the Treasury Department, in which the deductibility of the Pritchard loss
was first questioned (referred to as item 20 at the time of the trial) , until the
successful termination of the plaintiff's efforts (items 28) , constituted the prac-
tice of law, for which services he must be denied recovery. 90
The court ignored the fact that the determination of income
and the classification of a loss is an accounting process in which
lawyers generally profess no competence. In effect, the court held
that Agran "practiced law" because he practiced before the Treas-
ury Department, as the Treasury Department authorized him to
do by issuing him a card.
The editors of The Journal had the following to say:
The Treasury Department can bring us back to reality. It has unchallengable
authority in this area. If it will say clearly what its rules mean, the fantasy will
be ended. 91
^Editorial, "Agran in Wonderland," The Journal of Accountancy, C (August, 19S5), 29.
»mid., p. 30.
280 History of Public Accounting
The subsequent issuance of Circular 230 by the Treasury De-
partment was an effort to clarify the practice before the depart-
ment in federal income tax matters.
American Institute Withdraws from Agran Case
Following the statement by the Secretary of the Treasury, the
American Institute and the California Society of Certified Public
Accountants subsequently decided to drop the Agran case. Since
the case had become something of a cause celebre, an explanation
of the circumstances seems in order.
Agran sued a client, Shapiro, for a fee for services rendered, in-
cluding settlement of tax liability with the Internal Revenue agent.
He won the case in municipal court and was awarded the full
amount of the fee claimed.
On appeal, the Appellate Department, Superior Court of Los
Angeles County, California, held that Agran's work constituted in
part the unauthorized practice of law, and remanded the case to
the lower court for decision as to how much fee he was entitled to
for that part of his work which was not considered the practice of
law.
This case followed the heels of the Bercu case in New York,
the Conway case in Minnesota, and others of less importance in
other states, in which unauthorized practice committees of local bar
associations had charged that various activities of accountants in
the field of tax practice constituted practice of law.
The Agran case was the first in which a C.P.A. who held a
Treasury card had been attacked apparently for doing only what
the Treasury authorized him to do. The implications of the Agran
decision seemed so ominous that the Council of the American In-
stitute resolved to ask the Treasury Department to clarify the right
of enrolled C.P.A.'s to represent their clients before the Depart-
ment.
In the light of the improved relations with the organized bar,
and the Treasury interpretation of its regulations, the Council of
the Institute at its April, 1956 meeting decided that there was no
necessity to participate further in the Agran case, which in the
meantime had been retired with a decision adverse to the C.P.A.
plaintiff. The final decision, upon appeal, of the Appellate Depart-
ment of the Superior Court of Los Angeles County was handed
Public Accounting in the United States During 1950 's 281
down September 30, 1956. It was again adverse to the C.P.A.
plaintiff. 92
Practice Before Treasury Department
The Treasury Department statement on January 30, 1956 seems
to clearly confirm the long-established practice of enrolled agents
before the Department and to make it clear that regulation of this
practice is within the exclusive province of the Secretary of the
Treasury.
The statement of the Secretary was made for the following reason:
Recently it has been contended that some phases of practice before the De-
partment constituted the "practice of law," that the state courts had power to
regulate the practice of law, and that the state courts, therefore, could properly
prevent nonlawyers from doing things, in representing taxpayers before
the Treasury Department, which the court held to be within the exclusive do-
main of lawyers. 93
The Treasury Department opened practice before it to some
individuals not enrolled by proposed revisions of Circular 230
announced October 31, 1958.
One significant change in policy allows those who prepare tax
returns for others to represent taxpayers before revenue agents
without being enrolled. A second proposal provides a less difficult
examination for enrollment.
Under the terms of the second change, a simplified examination
has been instituted to enable qualified persons, other than C.P.A.'s,
lawyers, and former Internal Revenue Service personnel, to be
specially enrolled to practice before the I.R.S. "The new examina-
tions," the I.R.S. announced, "will not be as difficult as those
presently given." They are, however, designed to test adequately
the competency of candidates to represent taxpayers at all levels of
the I.R.S. About 2,500 candidates passed the first examination for
Treasury cards.
92 Editorial, "The Agran Case in Perspective," The Journal of Accountancy, CII (December, 1956), 30.
"Editorial, "Practice Before Treasury Department Clarified," The Journal of Accountancy, CI (April,
1956), 29.
282 History of Public Accounting
Under the proposed revisions, any person who prepares a return
for a taxpayer would be permitted to appear as the taxpayer's repre-
sentative, with or without the taxpayer's presence, before revenue
agents and examining officers in the District Director's office (but
not at the important conference level) in connection with the re-
turns prepared by him. 94
On January 30, 1956, the Secretary of the Treasury issued a state-
ment interpreting Treasury Department Circular 230 relating to
practice before the Treasury Department. In this statement the
Secretary mentioned the need for uniformity in interpretation and
administration of the regulations governing practice before the De-
partment and stated that it has properly placed on lawyers and ac-
countants, under the Department's ethical requirements, respon-
sibility for determining when the assistance of a member of the
other profession is required.
After the Treasury statement and the end of the Agran case,
voluntary machinery was re-established under the 1951 Statement
of Principles to encourage self-discipline and to enable differences
between lawyers and C.PA.'s to be resolved as they may arise
(whether in tax practice or elsewhere) by conference and negotia-
tion, and not by litigation. A special Committee on Professional Re-
lations of the American Bar Association and the American Insti-
tute's Committee on Relations with the Bar have agreed that the
National Conference of Lawyers and C.P.A.'s, composed of mem-
bers of the two committees, should serve as a joint committee to
consider differences arising between the two professions involving
questions of what constitutes the practice of law or that of account-
ing.
The joint committee made the following recommendations as to
procedures:
1. That with respect to the field of federal income taxation, the two pro-
fessions continue to adhere to the Statement of Principles, approved by the
governing bodies of the American Bar Association and th American Institute
of Accountants in 1951. It is recognized that the statement is a guide to co-oper-
ation and does not presume to be a definition of the practice of law or the prac-
tice of accounting.
M News Report, "Treasury Practice Rules Eased," The Journal of Accountancy, CVI, (December,
19S8), 7.
Public Accounting in the United States During 1950 's 283
2. That state organizations of the two professions consider the establishment
in each state of a joint committee similar to the National conference for con-
sideration of differences arising between and members of the two professions.
3. That before any state organization of either profession shall institute or
participate in litigation or disputes involving differences between members of
the two professions, or involving questions of what constitutes the practice of
law or accounting, such differences and questions be referred to joint committees
of state organizations of the two professions, where such committees exist, or to
the National Conference.
4. That, in the interest of uniformity, state committees maintain close co-
ordination with the National Conference; and if resolution of differences
seems impossible at the local and state level, they be referred to the National
Conference. Particularly in the early years, it would seem to be in the best in-
terest of all concerned for the National Conference to participate actively in the
consideration and settlement of disputes which might serve as guides and pre-
cedents for other cases.
5. That— again in the interest of uniformity— where joint committees at the
state level are appointed to deal with any differences which may arise, they be
limited, where possible, to one to a state, and their structure and procedure
follow the pattern of the National Conference.
It is hoped and believed that resolution of specific cases as suggested above
will in time provide a body of precedent which will come to serve as a guide
to members of the two professions. Such a body of precedent will, we think,
prove of more practical value than attempts to find acceptable definitions of
the fields of the two professions.
The efforts of the National Conference are not, of course, intended to be
punitive in nature. Their objective will be to avoid conflict and to encourage
and enable continuing co-operation between lawyers and certified public ac-
countants in accordance with the ethical standards of the two professions.
For the American Bar Association
William J. Jamison, Chairman
Special Committee
For the American Institute of
Accountants
John W. Queenan, Chairman Committee
on Relations with the Bar 95
^Official Release, "Joint Report of Special Committee on Professional Relations of American Bar
Association and Committee on Relations with the Bar of American Institute of Accountants," The
Journal of Accountancy, CIII (January, 1957), 54.
284 History of Public Accounting
Bar Lists Seven Objectionable Tax Activities
The American Bar Association Committee on Unauthorized
Practice of Law, in its eighth annual report to the Association, dis-
cussed the relation of accountants and lawyers in tax practice, and
expressed the opinion that it was the practice of law to do any of
the following:
1. To give advice regarding the validity of tax statutes or regulations of the
effect thereof in respect of matters outside of accounting procedures.
2. To determine legal questions preliminary or prerequisite to making of a
lawful return in a lawful manner.
3. To prepare protests against tax adjustments, deficiencies or assessments.
4. To represent a taxpayer at a conference with administrative authorities in
relation to matters outside of accounting procedures.
5. To prepare claims for refund of taxes.
6. To prepare petitions, stipulations or orders incident to the review of assess-
ments by the U. S. Board of Tax Appeals or any like administrative tribunal.
7. To conduct the trial of issues before the U. S. Board of Tax Appeals or any
like administrative tribunal. 96
Lawyers and C.P.A.'s Co-operation
After the Bercu case the National Conference of Lawyers and
Certified Public Accountants had further meetings, out of which
came a statement which was unanimously approved by the American
Institute of Accountants and the Board of Governors and House of
Delegates of the American Bar Association. This statement was made
in an effort to prevent future occurrences such as the Bercu case
and public conflict between the two professions.
Excerpts from the statement of principles relating to practice in
the federal income taxation field follow:
1. Collaboration of Lawyers and Certified Public Accountants Desirable. . . .
Lawyers should encourage their- clients to seek the advice of certified public
accountants whenever accounting problems arise and certified public account-
"Official Decisions & Releases, "American Bar Association Committee Lists Seven Tax Activities It
Considers To Be Practice of Law," The Journal of Accountancy, XCI (February, 1951), 307.
Public Accounting in the United States During 1950' s 285
ants should encourage clients to seek the advice of lawyers whenever legal
questions are presented.
2. Preparation of Federal Income Tax Returns. It is a proper function of
a lawyer or a certified public accountant to prepare federal income tax returns.
3. Ascertainment of Probable Tax Effects of Transactions. ... In many cases,
therefore, the public will be best served by utilizing the joint skills of both
professions.
4. Preparation of Legal and Accounting Documents. Only a lawyer may prepare
legal documents such as agreements, conveyances, trust instruments, wills. . . .
Only an accountant may properly advise as to the preparation of financial
statements included in reports as submitted with tax returns, or as to account-
ing methods and procedures.
5. Prohibited Self-Designations. An accountant should not describe himself
as a "tax consultant" or "tax expert" or use any similar phrase. Lawyers, sim-
ilarly, are prohibited by the canons of ethics of the American Bar Association
and the opinions relating thereto, from advertising a special branch of law
practice.
6. Representative of Taxpayers before Treasury Department. ... If in the
course of such proceedings, questions arise involving the application of legal
principles, a lawyer should be retained, and, if in the course of such pro-
ceedings accounting questions arise, a certified public accountant should be
retained.
7. Practice before the Tax Court of the United States. Under the Tax Court
rules nonlawyers may be admitted to practice. . . .
Here also, as in proceedings before the Treasury Department, the taxpayer,
in many cases, is best served by the combined skills of both lawyers and
certified public accountants, and the taxpayers, in such cases, should be advised
accordingly.
8. Claims for Refund. Claims for refund may be prepared by lawyers or
certified public accountants, provided, however, that where a controversial legal
issue is involved or where the claim is to be made the basis of litigation, the
services of a lawyer should be obtained.
9. Criminal Tax Investigation. When a certified public accountant learns
that his client is being specially investigated for possible criminal violation
of the income tax law, he should advise his client to seek the advice of a
lawyer to determine his legal and constitutional rights. 9 ?
^"National Conference of Lawyers and Certified Public Accountants," The Journal of Accountancy,
XCI (June, 1951), 871.
286 History of Public Accounting
It was the hope of both professions that under these rules the pro-
fessions could continue in income tax practice. Every effort was made
by the two groups to reconcile their differences in an honorable
way.
The New York State Society of Certified Public Accountants
and the New York State Bar Association reached a formal agree-
ment which was wholly consistent with the Statement of Principles
in the Field of Federal Income Taxation, adopted by the National
Conference of Lawyers and C.P.A.'s in 1951. The New York C.P.A.
Society and the Bar Association specifically "concur in and ratify"
the national statement.
The following paragraph in the agreement is of special sig-
nificance:
These procedures are intended to provide voluntary means for the amicable
solution of any controversies which may arise between the two professions.
To this end it is agreed that, in so far as may be compatible with law and
except where necesssary to protect its rights in any case, neither the Bar
Association nor the Society of Certified Public Accountants will institute or
participate in litigation or a dispute involving the interests of the two pro-
fessions without first submitting such question to the Joint Practice Com-
mittee. 98
The New York agreement established a Joint Practice Committee
for dealing with potential sources of disagreement, especially when
a member of either profession is charged with invading the pro-
vince of the other.
In the state where the two professions were on opposite sides
of the Bercu case only a decade ago, this is a constructive achieve-
ment in which both can take proper pride. Further, during the
years immediately following the National Conference's adoption
of the Statement of Principles in 1951, formal or informal agree-
ments were reached between bar associations and C.P.A. societies
in more than half the states." Since the 1957 National Statement
(Jamison-Greenman), no serious conflicts have arisen. The National
Conference or state groups have settled questions by friendly neg-
otiation. Relations in 1960 are the best in twenty years.
B8 Editorial, "Lawyer - CPA Co-operation," The Journal of Accountancy, CVII (March, 1959), 27.
m Ibid., p. 28.
Public Accounting in the United States During 1950's 287
Ethics and Practice of Law and Public Accounting
The following may be cited as an example of one view of the
ethical considerations involved in practicing law and public ac-
counting in one office. The New York County Lawyers Association
received a question from a member regarding the practice of law
and public accounting from the same office. The answer given the
lawyers and certified public accountants by the committee on pro-
fessional ethics of the New York Lawyers Association was as follows:
Question
Is it professionally proper for AC and BC, two brothers, who are both
members of the New York Bar and also certified public accountants of the
State of New York, to practice accountancy at the same office, in New York
City where they practice law, placing on their office door the following legends:
C&C
Attorneys and Counselors at Law
C & Company
Certified Public Accountants
Answer
Two principles are involved in the consideration of this question. The
first, grounded on canon 27, is that an attorney at law, acting as such, may
not by any form or medium of advertising, announce to the public at large
that he has a special skill in a particular branch of the law. This prohibi-
tion extends to every type of publicity, including legends on office doors, sta-
tionery, announcements, letters, circulars, etc.
The other principle, also established by canon 27, is that a lawyer may
not solicit professional employment by advertisements, circulars, or by per-
sonal communications or interviews not warranted by personal relations.
We are aware that the committee on professional ethics and grievances of
the American Bar Association, in its opinion 272 (October 25, 1946) , ex-
pressed the view that a lawyer could not, as a practical matter, carry on an
independent accounting business from his law office without violating canon
27. With all due respect to the committee on professional ethics and grievances
of the American Bar Association, we have come to the conclusion that neither
of the aforesaid prohibitions of canon 27 would be violated by the procedure
set forth in the question, provided that AC and BC, in the practice of their
288 History of Public Accounting
profession as certified public accountants, adhere to the professional stand-
ards applicable to attorneys at law with respect to advertising and solicitation.
In our opinion the proposed legends on the office door would merely identify
the firms occupying the premises and the professions practiced by them therein,
and would not constitute either advertising or solicitation by AC and BC
within the meaning of canon 27. 100
Employment of Lawyers by CPA Firms
Dean Erwin N. Griswold of the Harvard Law School, who suc-
ceeded Judge Jamison as co-chairman of the National Conference
of Lawyers and C.P.A.'s in 1958, has taken a helpful interest over
the past few years in minimizing friction and misunderstanding
between lawyers and certified public accountants in the field of
tax practice. This interest has led to occasional informal exchanges
of views on specific questions between Dean Griswold and repre-
sentatives of the American Institute of Certified Public Accountants.
Recently Dean Griswold wrote the Institute on a subject which
has caused a great deal of irritation in bar association circles— the
employment of lawyers by accounting firms. The Dean wrote as
follows:
In a purely personal and wholly unofficial way, I want to pass on to you a
paragraph from a letter which has just come to me from a lawyer friend. I be-
lieve that it summarizes what is perhaps the really most difficult problem in the
lawyer-accountant area. At least it shows the way some thoughtful lawyers
are thinking. The paragraph in question reads as follows:
"With regard to the CPA item, nothing is surprising in this field. A large
accounting firm now has approximately ten lawyers in the 'Tax Department'
of its local office alone, having only one approximately three years ago. Another
firm has about twenty-five lawyers and lawyer-CPAs in its 'Tax Department'
and thirty-five in its 'Auditing Department.' "
One of the accounting firms referred to was discovered to be
Lybrand, Ross Bros. & Montgomery, of which Alvin R. Jennings,
100 Official Decisions & Releases, "New York County Lawyers Association Answers a Question on
Ethics," The Journal of Accountancy, LXXXIX (January, 1950), 72.
Public Accounting in the United States During 1950's 289
nominee for the presidency of the Institute, is senior partner.
The matter was brought to his attention, and Mr. Jennings wrote
Dean Griswold as follows:
Before dealing with the substance of your correspondence, I would like you to
know that I share the feeling which is general in our profession that your
personal participation in the efforts to further the understanding between
our two professions has been profoundly helpful. From your writings and
otherwise I have the impression that your views generally on the proper
place of the certified public accountant in the field of tax practice are very
similar to those held by our partners.
As a firm, we wholeheartedly endorse the purposes and aims of the National
Conference of Lawyers and Certified Public Accountants. We acknowledge a
responsibility for identifying and, if possible, for eliminating causes of friction
between the two professions. We have no desire to practice law and I am
sure, in all material respects, there is no disagreement between your views
and ours on what might constitute the practice of law.
The question of the propriety of the employment of lawyers by firms of
CPAs has been raised with some frequency. It has been said that some of the
national accounting firms "have law departments." it has been charged that
some such firms give legal advice. I would suppose that, so long as differences
of opinion exist on what constitutes maintenance of "legal departments" 01
of "legal advice," the problem will remain with us.
Our firm organization includes a relatively few men who have law degrees.
Almost without exception, these men have never practiced law but came to
us initially out of college with a law degree or attended law school nights
while employed by us. Almost without exception the men with law degrees
also are certified public accountants or are presently preparing themselves to
become such. Because we recognized that employment by accounting firms
of lawyers was a source of misunderstanding, our firm, more than a year ago,
issued a statement of policy on the subject. I am enclosing a copy for your
information.
I am unable to accept the idea that there is anything improper, per se,
in the employment of a lawyer by a firm of CPAs or the employment of a
CPA by a firm of lawyers. As you can determine from our own statement
on the subject, we do believe that, if a firm of CPAs should have among
its employes those who possess law degrees, the firm should do everything
290 History of Public Accounting
possible to avoid the impression that it is competent to practice law or holds
itself out as doing so. In my opinion, it would be a bad thing for both our
professions if the Bar were to adopt a canon which would prevent one of its
members from accepting employment with a firm of certified public account-
ants. However, it does not seem to me unreasonable that the Bar should
take the position that one of its members cannot serve in both capacities at
the same time and that a member of the Bar who accepts employment in
the office of a certified public accountant should, in effect, consider his right
to practice law to be restricted so long as he is so employed.
There may be strong reasons why the Bar would be reluctant to prohibit
its members from accepting employment as corporate officials or employment
in any other field of their choosing. Do there exist reasons why the Bar could
not restrict the right of one of its members to practice law so long as by
his own choice he was employed in a field in which the Bar believed that
the practice of law was incompatible? If such restrictions were generally re-
garded by members of the Bar as desirable, could not the Bar associations
do a great deal to set the whole problem at rest by amending their canons
of practice to achieve this result?
If you would like further details concerning our organization or our policy
regarding the employment of members of the Bar, I hope that you will feel
free to write me.
The statement of policy to which Mr. Jennings refers is the fol-
lowing:
Subject: Employment of Members of the Bar
February 8, 1956
To All Partners:
The American Institute of Accountants has devoted a great deal of time and
effort to finding a workable solution to the controversy over the proper place
of the accountant in the field of federal tax practice.
Several responsible spokesmen of the Bar have asserted that the large national
accounting firms maintain legal departments and give legal advice to clients.
The AIA has made efforts to find out what, if any, factual basis there may
be for such assertions. While these efforts have not disclosed any such cases,
Public Accounting in the United States During 1950' s 291
they do suggest the possibility that the misunderstanding grows out of the
employment of attorneys by accounting firms.
An example in point may be cited from an article by a prominent member of
the Bar which appeared last summer in the Arkansas Law Review in which
the author says:
"A word at this point about the employment of lawyers by accounting firms.
While employment of an attorney by the major accounting firms is not per se
unlawful, it is evidence that these firms are practicing law in the giving of
general advice to clients. This advice not only includes pure tax practice,
but in many instances, includes a consideration of property and other laws,
the consideration of which is necessary to the answer to the particular tax
problem. While the employment of the attorney is not itself unlawful, it is
what the attorney does for the accountant that is unlawful. The giving of
the opinion by the lawyer, acting for the accountant, where the lawyer is
simply the employee or agent, is the giving of the opinion by the principal,
and not by the agent. This would be true even though the accountant himself,
as partner, happens to be also a lawyer. It is the accounting firm, over its
letterhead, that purports to answer the questions and to give the advice, and
the fact that its agent in giving the advice is a lawyer, does not mean that
the advice by the firm is thereby legalized. The American Institute should
adopt a firm rule that accountants shall not, as a matter of policy, employ
attorneys. If they do not succeed in this, action should be taken by the Amer-
ican Bar Association."
Some of our partners and staff have legal in addition to accounting degrees.
In a relatively few cases members of our tax staff who have law degrees are
not yet CPAs. These circumstances do not alter the fact that our practice is
that of public accounting. We do not practice law and we have no desire to do
so. Possession of a CPA degree is essential for advancement to positions of
responsibility in our profession. Accordingly, our personnel policies stress
the importance of attaining the degree. This is so without regard to whether
the staff member may be employed in the auditing, special management or
tax areas of our practice. At no point should we require that the possession of
a law degree be a requisite for employment or advancement. Possession of a
law degree, on the other hand, should not prevent us from employing anyone
who has the requisite accounting education or experience.
To avoid the unwarranted implication that we are holding ourselves out as
competent to practice other than in the field of public accounting, our Execu-
tive Committee believes that we should not approve any public reference to
292 History of Public Accounting
law degrees which may be held by partners or staff. Articles written or talks
given by partners or staff members who possess dual degrees may properly
describe the author as a CPA but should not identify him as a member of the
Bar. If a member of the staff who does not hold the degree of CPA should
publish an article, or appear on a program, his identification with the firm
may be stated but no reference to a legal degree, if any, should be approved.
Sincerely,
A. R. Jennings
To this communication Dean Griswold replied:
Thank you very much for your letter of June 17. I am glad to hear from you.
I suspect that one of the major areas of friction between lawyers and account-
ants lies in the employment of lawyers by accounting firms. Where these
persons are primarily and basically accountants, who have simply studied law
in the evenings as an aid and background to their accounting work, I doubt
if much problem arises. On the other hand, though, where the persons are
basically and essentially lawyers, with their primary training as lawyers, I
am inclined to think that a good many difficulties and misunderstandings can
arise. This is particularly true where they are not certified public accountants.
It is also true to a considerable extent where they do qualify for the CPA after
having full legal training and experience.
Thank you for sending me your policy statement of February 9, 1956. This
is very interesting. It seems to me to be an important step in the right direc-
tion. I am sure that if all accounting firms would adopt this policy, and
would carry it out, there woud be a considerable drop in friction between
lawyers and accountants. This is something which might be considered in
more detail by the National Conference of Lawyers and Certified Public
Accountants.
This correspondence may raise the question why accounting
firms employ men with law degrees in the first place. Frequently
men with law degrees apply for positions in accounting firms. There
has been an urgent need for good men in the rapidly growing pro-
fession of accounting. A promising man with a trained mind is wel-
comed as a recruit today by almost any accounting firm, whether
he is skilled in law, engineering, science, economics or any other
discipline-. It goes without saying that such recruits -must study
Public Accounting in the United States During 1950's 293
accounting and obtain the CPA certificate before they can advance
in the accounting profession. Again, accountants on the staffs of
accounting firms have studied law in the belief that it would be a
useful additional discipline.
There may be a few exceptions. Perhaps some certified public
accountants, without giving the matter much thought, have assumed
that it is all right to employ lawyers on a salary to deal with legal
aspects of tax work for clients of the CPAs. Any such CPA, or
accounting firm, would be open to charges of unauthorized prac-
tice of law, since the proprietor or partners of the firm would be
accepting fees for the legal work done by their employees. Any such
situation should be corrected immediately. No employee of an ac-
counting firm should be permitted to render services which the
employer is not permitted to render.
At best, the presence of law-trained assistants on a CPA's staff
may be regarded as circumstantial evidence of improper intentions.
For this reason, any accounting firm which employs men with law
degrees, even if they do nothing but accounting work, might do
well to follow the policies adopted by Mr. Jennings' firm. 101
Use of Title "Tax Consultants"
The American Institute's Committee on Relations with the Bar
agrees that it would be desirable for an accountant to discontinue
the use of the designation "tax consultant" in conjunction with
his name in the telephone directory. The bar association cited
the decision of the New York Court of Appeals in the Bercu case
which prohibited the defendant from using the designations "Tax
Counsel," "Tax Consultant" or similar designations. 102
The American Bar Association Standing Committee on Unau-
thorized Practice of Law adopted an opinion on the use of the
title "Tax Consultant." The complete text of the views is given
here because of the magnitude of the lawyer-accountant conflict
of the past dozen years.
^Editorial, "Employment of Lawyers by Accounting Firms," The Journal of Accountancy, CIV
(September, 1957), 30.
102 Editorial, "Use of Designation 'Tax Consultant' Is Challenged," The Journal of Accountancy, XC
(Jury, 1950), 5.
294 History of Public Accounting
OPINION NO. C OF 1950
FROM THE
STANDING COMMITTEE ON UNAUTHORIZED
PRACTICE OF LAW
OF THE
AMERICAN BAR ASSOCIATION
In many cities Classified Telephone Directories are published which contain a
separate listing of persons and firms describing themselves as "Tax Con-
sultants."
An analysis of the listing in the Classified Telephone Directory in one city
(Manhattan, New York City Directory) discloses the names of 125 persons and
firms who designate themselves as "Tax Consultants"; of these, 36 appear to be
certified public accountants, 11 appear to be lawyers, (some of whom are also
certified public accountants) and as to the rest, except for 18 public account-
ants, a special investigation of each would be required to ascertain what claim
is made to professional status.
The American College Dictionary defines the word "consultant" as "one
who gives professional or expert advice." Therefore, the listing under the
designation "Tax Consultant" can have only one purpose, and that is to make
the public believe that the persons listed under such designation are experts
in tax law problems and are qualified to give tax law advice.
The title "Tax Consultant" is self-bestowed. It does not represent any degree
or designation awarded by any court, college or statute. Obviously, neither the
publishers or these directories nor the telephone companies can, nor do they,
attempt to ascertain or apply to these listees any standards of competency, of
good character or fitness which might entitle them to be represented to the
public as "Tax Consultants."
In all of the professions admission is not easy and a license to practice is
granted only after rigid examinations as to competence and character. In the
field of legal advice and the practice of law, statutes require that persons
rendering such services shall be competent and qualified, shall conform to high
ethical principles and maintain professional standards of practice. Thus every
effort is being made so that the public should have competent and qualified
legal advice from persons who must undergo a course of study and pass ex-
aminations, whose good character is passed upon as well, and who, after they
are licensed as lawyers, will give good, honest, disinterested advice and service
and be subject to regulation and control throughout their careers as members
of the legal profession.
Public Accounting in the United States During 1950 *s 295
To permit the public to be deceived into employing in the field of tax law
alleged experts who have given themselves the title "Tax Consultant," or any
similar title, thwarts the public protections that exist in respect to legal advice.
In New York its highest public court 1 has enjoined a certified public ac-
countant from calling himself a "Tax Consultant," "Tax Counsel" or from
using any similar designation likely to deceive the public. The American Insti-
tute of Accountants has recommended that certified public accountants dis-
continue the use of the title "Tax Consultant" to avoid any suggestion that
the accountant is prepared to give advice on legal questions as well as account-
ing questions which may arise in tax practice. 2
Many a taxpayer may be competent to prepare his own tax return, but when
in its preparation he reaches the point where technical assistance is needed, he
is entitled to be expertly advised as to whatever law may affect his situation
including, of course, as well, the tax law, its judicial interpretation, rules and
regulations. Any determination of applicable law and all advice based thereon
must be applied to his problems before anyone can compute his probable tax
liability and apply the principles of accountancy in relation thereto.
It has long been recognized by both the legal and accounting professions
that professional men should not advertise. As to lawyers, it has been declared
unprofessional conduct for them to insert their names in any directory under
any title other than as a "lawyer."
If misrepresentations as to alleged expertness in any professional field by
unqualified and unauthorized persons were permitted, all of the existing public
protections in respect to such service can be evaded. Advertising the title of
"Tax Consultant" or any similar title by unauthorized persons, whether in a
Classified Telephone Directory or otherwise, tends to bring about such result
in the field of tax law.
Jin the Bercu Case, 273 App. Div. 524, 78 N.Y. Supp. (2nd) 209; 9 ALR (2nd) 787 aff'd 299.
N.Y. 728. See also: Gardner v. Conway, Minn. Second Judicial Court, Ramsey County Par. 72, 390,
P.H. Fed. 1950; Lowell Bar Association v. Loeb, 315 Mass. at 18252 N.E. (2nd) 27.
Vournal of Accountancy, July, 1950, Volume 90, Number 1, p. 5.
Your Committee has come to the following conclusions:
1. The listing of "Tax Consultant" referred to aids and makes possible the
unauthorized practice of law because such a conglomerate grouping of lawyers,
certified public accountants and others inevitably leads the public to believe
that all of those listed are equally competent in the tax law field, results in
296 History of Public Accounting
the performance of legal services, encourages the giving of legal advice and
the rendition of legal services by persons unauthorized to do so.
2. Lawyers who permit their names to be used in such a listing should be
apprised of Canon 47 3 which expressly forbids the use of a lawyer's name to
aid or make possible unauthorized practice of law by others.
3. Persons listed who are not lawyers may be subject to the penalties pro-
vided by the laws which seek to protect the public from the danger inherent in
the representation by unauthorized persons that they are qualified to practice
law or give legal advice or service.
This Committee expresses the desire that publishers of these directories
cooperate with the legal and accounting professions in the public interest, to
do away with the classification which, aside from deceiving the public, is mani-
festly unfair to the thousands of reputable persons who are appropriately
listed in the directories under their correct designations, to wit, "Accountants,"
"Certified Public Accountants" and "Lawyers."
Dated: Washington, D.C.
September 16, 1950
STANDING COMMITTEE ON
UNAUTHORIZED PRACTICE OF LAW
By John D. Randall, Chairman
Thomas J. Boodell, Secretary
Warren H. Resh
Cuthbert S. Baldwin
A. J. Casner
E. N. Eisenhower
Edwin M. Otterbourg 103
3 Canon 47, Opinion S3, American Bar Association Committee on Professional Ethics and Grievances.
Common Interest of Lawyers and C.P.A.'s
The lawyer and the Certified Public Accountant combine their
respective knowledge in countless situations with which modern
business is confronted. It is significant that the trouble arose mainly
in the field of federal income taxation, where the skills of lawyers
103 Official Decisions and Releases, "Use of Term 'Tax Consultant' Opposed by American Bar Asso-
ciation Standing Committee on Unauthorized Practice of Law," The Journal of Accountancy, XCI
(February, 1951), 307.
Public Accounting in the United States During 1950' s 2,Q1
and certified public accountants come together in closer relation,
perhaps, than in any other field. But it is also significant that the
protagonists in the conflict were not generally the lawyers and Cer-
tified Public Accountants who specialized in taxation. The most
violent and extreme positions, generally speaking, were taken by
spokesmen of the two professions and techniques of tax practice.
It is generally recognized that there is a place in tax practice for
both the lawyer and the C.P.A. The National Conference of Law-
yers and Certified Public Accountants has subscribed to this
view. 104
Summary
The public accountant, a little over 100 years ago, in 1854, was
given professional status by the creation of the designation "Char-
tered Accountant," first in Scotland and soon after in England.
This happened simultaneously with the recognition that the inde-
pendent auditors accepted a personal responsibility separate from
that of the persons who employed and paid them. This responsibil-
ity is due not only to the client but also to third parties who may
place reliance on the financial statements, which are given a greater
credibility by the professional accountant's examination and opin-
ion.
About 70 percent of the new entrants to C.P.A. ranks are college
graduates. Advanced degrees in accounting, including masters and
doctorates, are now available at many universities.
Forty years ago the American Institute of Certified Public Ac-
countants began the development of a code of ethics which has
now evolved into nineteen major rules supplemented by published
opinions of the Committee on Ethics and Resolutions of the govern-
ing Council.
Alvin R. Jennings mentions the following as typical business situ-
ations in which the C.P.A. and the lawyer come together: estate
planning, pension or profit-sharing plans, voluntary extension of
credit, insurance losses, labor negotiations.
The decade of the 1950's began with the conflict between the
lawyers and certified public accountants in litigation and ended
10 *Alvin R. Jennings, "Common Interests of Lawyers and Certified Public Accountants," Lybrand
Journal, XL (1959), 7.
298 History of Public Accounting
with the problem still unsettled. Yet the public accounting pro-
fession made great progress toward national and international
recognition. Evidence of this recognition is found in the growth
of the large and small public accounting firms and in increased
demands for services from certified public accountants.
The management services area in public practice was one of the
major developments in the decade. However, the Securities and
Exchange Commission continued to exercise great influence over
the public accountant and his actions. Finally, future develop-
ments in the public accounting profession can be expected to lie
in the areas of collegiate education, the Accounting Principles
Board, and restrictive legislation. C.P.A.'s have moved ahead rap-
idly on all fronts: standards are being clarified, services expanded,
training improved, and public recognition steadily attained.
CHAPTER IX
Summary
The evolution of bookkeeping into accounting and the improved
accounting techniques have, to a certain extent, developed as busi-
ness has developed. Any nation that has attained a high degree of
economic development has carried on extensive commerce. Com-
mercial and industrial development probably could not have been
so rapid without corresponding improvements in the system of
accounting. Accountancy then is the mirror of the past in which
the world's commercial history is reflected. In reading histories of
commerce and industry it becomes evident that the higher the
stage of culture and commercial development in a community,
the more advanced its methods of accounting. The cause and effect
are not so readily observed.
The antecedents of American public accounting are to be found
in Scotland and England. In these countries the profession developed
rapidly during the nineteenth century, receiving impetus from
laws enacted by Parliament. The first major legislation, the Com-
panies Acts of 1862 and 1869, required annual audits of regulated
firms. At first these auditors were the stockholders in the companies.
An auditing committee was appointed by the stockholders. They
were not necessarily qualified for the undertaking, nor were they
likely to be.
When these company committees recognized the problems in-
volved in the auditing of the records, outside accountants were
consulted. Perhaps that is why A. C. Littleton says these Companies
Acts have been called the friend of the public accounting pro-
fession.
With greatly increased demand for accountants, some unqualified
persons began to represent themselves as public accountants. In an
effort to protect their profession, the English accountants followed
the lead of their Scottish neighbors in forming organizations for
mutual benefit, and groups in Scotland, Ireland and England sub-
300 History of Public Accounting
sequently concluded a working arrangement for the building of
uniform professional requirements.
Because of the close economic ties between the British Isles and
the United States during the last half of the nineteenth century
and the first quarter of the twentieth century, many accountants
were sent to the United States to check on English and Scottish
investments in the brewery industry and in railroads. Public ac-
counting offices manned by American accountants soon opened in
this country.
The first of these local firms was established in New York in
1882 by Barrow, Wade, Guthrie and Company. Prior to 1880,
there were scattered references to public accountants and the per-
formance of their functions during the eighteenth and nineteenth
centuries. However, accountancy was not a full-time occupation
until the late nineteenth century.
The number of firms increased rapidly in the 1890's as a result
of increased business activity in the United States. Mergers of rail-
roads and industrial enterprises during the last decade of the nine-
teenth century gave additional impetus to the development of the
profession.
Accountants began to organize almost as soon as they began to
practice as public accountants. The Institute of Accountants and
Bookkeepers was the first of these organizations. There are few
records of the Institute of Accountants and Bookkeepers, but it
did play a significant part in the drafting of C.P.A. legislation.
The major accounting organization formed during the 1880's
was the American Association of Public Accountants in 1886. The
American Association of Public Accountants did not reach any real
prominence outside the state of New York, but it, along with the
Institute of Accountants and Bookkeepers, was responsible for the
drafting of the first C.P.A. bill, which was defeated by the New
York legislature because of a restrictive provision.
In the last quarter of the nineteenth century the literature of
the profession and its educational facilities alike began to grow.
These earliest schools were private ones devoted to bookkeeping.
American textbooks began to replace British. These changes typify
the increasing interest in education evinced by accountants. Those
in New York attempted to set up a school in New York City under
the New York State Board of Regents but sponsored by the pro-
fession.
Summary 301
In the following period, 1896-1913, the profession received its
first legal recognition when the New York legislature enacted the
first C.P.A. law. The act was the same as the bill that had been
sponsored by both the Institute of Accountants and the American
Association except that the restrictive provisions were omitted.
A board of examiners was appointed by the Regents and the
first examination was given in December, 1896. According to the
records of the American Institute of Accountants, however, the
first certificates issued on examination were dated 1898. In that
same year the first violator of the C.P.A. law was fined for using
"Certified Public Accountant" in an advertisement offering his
services.
Accounting firms began to open branch offices to facilitate the
services given their clients. It was more satisfactory for the public
accounting firms to have a branch office conduct the audit of
branch offices of clients than it was to have another firm act as
agent.
Industrial consolidations in the early 1900\s gave impetus to the
development of the public accounting profession. The most notable
of the industrial mergers was the formation of the United States
Steel Corporation. The stockholders of the United States Steel
Corporation elected the auditors for their company in 1902. This
election was probably the first instance of a practice that is now a
part of accepted corporate procedure.
With public accounting firms and branches beginning to develop
and operate over much of the eastern half of the United States,
as well to have scattered engagements throughout the country,
more attention was given to getting trained assistants.
Professional organizations sponsored educational institutions and
guaranteed them against losses. The first department of account-
ancy, as such, was founded at the University of New York in 1900.
In 1902 the Pennsylvania Institute established an accounting de-
partment which was turned over to the Wharton School of Ac-
counts and Finance in 1904.
The practitioners also recognized the need for a professional
periodical in the accounting field. The Journal of Accountancy
was established to meet professional needs of accountants. But it
was not until 1912— seven years later— that the profession assumed
editorial control of the Journal.
When the first C.P.A. law was enacted in 1896, some ten years
302 History of Public Accounting
after the American Association of Public Accountants was organ-
ized, there were only forty-five members of that organization. Three
years later, an organization called the National Society of Certified
Public Accountants was created, but it merged with the American
Association in 1899. In 1902 another accounting organization, the
Federation of Societies of Public Accountants in the United States,
was formed, but it too was absorbed by the American Association
after the first International Congress of Accountants at St. Louis
in 1904. From a very early date it seems that there was a strong
desire within the profession for one national organization.
The auditing reports issued during the first decade of the twen-
tieth century exemplify the standards of that period. The significant
items in the auditors' certificates were the statements that the in-
ventories had been verified by an official of the company, that pro-
visions for bad debts had been made, and that adequate deprecia-
tion and all ascertainable liabilities had been recorded. Then the
auditors certified that the statements were true or were correctly
taken from the accounts and books of the company. Thus, the
emphasis during the first decade of the twentieth century as fat as
auditing was concerned was on valuation.
Provisions of the 1909 franchise tax on the income (cash receipts
minus the cash disbursements) of a corporation were largely ig-
nored, in that practitioners disregarded the basis for measuring
the taxable income and continued to operate on the regular accrual
basis. Due to accountants' lack of complaints about the 1909 tax
law, the passage of the sixteenth amendment and the 1913 income
tax law was facilitated. The stepped-up rates and the excess profits
tax of the 1917 act brought more work to public accountants.
During World War I the public accountant was called in by
foreign governments to determine the proper cost of war goods
purchased in the United States. Among others, J. P. Morgan and
Company, which was acting as purchasing agent for England and
France, was audited by an American firm. The early engagements
on cost determination led to others for the American firms.
By 1924 all states and territories had enacted some law giving
legal recognition to the C.P.A. In that year, however, several sec-
tions of the Oklahoma law were declared unconstitutional because
of the restrictive provision limiting practice to public accountants
who had been licensed by the state.
The American Association was reorganized in 1917, when the
Summary 303
name was changed to the Institute of Accountants in the United
States of America, later shortened to the American Institute of
Accountants. A more satisfactory charter was obtained under the
laws of the District of Columbia and the new organization was
designed in such a way as to avoid the frequent criticism that it
was dominated by New York accountants.
Peace in the national organization lasted only four short years.
In 1921 the National Association of Certified Public Accountants,
a private corporation, was organized to give examinations and issue
C.P.A. certificates. Actually the organization sold certificates-
some three thousand in three years. In 1923, an injunction was
issued against the organization, restraining it from issuing any
more. This decision by the Court of Appeals in the District of
Columbia confirmed the states' rights to license Certified Public
Accountants and regulate their activities.
The injunction against the National Association of Certified
Public Accountants did not settle the problems of the public ac-
counting profession. The American Institute of Accountants did
not take as strong action against the National Association, a private
organization, as many members felt it should. In 1921, some of
the members of the American Institute of Accountants withdrew
and formed the American Society of Certified Public Accountants,
with the purpose of protecting and fostering the professional desig-
nation C.P.A.
Beginning in 1917, the American Institute of Accountants gave
its own examinations to prospective members. The Institute dis-
approved of certain state C.P.A. tests, as excluding qualified public
accountants from practicing as C.P.A.'s.
The federal government, through established agencies, gave
recognition to the profession in two instances. First, the Federal
Trade Commission requested that the members of the American
Institute of Accountants prepare a statement on uniform account-
ing, subsequently issued as Approved Methods for the Preparation
of Balance Sheet Statements, which was later revised and published
under the title Verification of Financial Statements, outlining aud-
iting procedures. Second, the Tax Board of Appeals ruled in 1924
that only C.P.A.'s and lawyers could practice before the Board.
Then the Ultramares case, settled in the late twenties, set up a
principle regarding the responsibilities of an auditor. The decision
confirmed the common law that third parties could not hold auditors
304 History of Public Accounting
liable unless fraud was involved, but extended the concept of fraud
almost to the borders of gross negligence.
The demand for more adequate reporting of financial informa-
tion developed out of the depression in the early 1930's and af-
fected the accounting profession greatly. Most important were the
Stock Exchange rulings and the enactment of the Securities Acts of
1933 and 1934. The Securities Acts defined the liability of the
auditor to third parties and set minimum reporting standards.
Although applied only to those corporations filing registration
statements under the Acts, the standards set and the reporting re-
quirements have tended to govern accounting practices throughout
business. Auditors no longer could allow the client to dictate what
would be included in the certificate. The Securities Acts thus gave
support to the professional accountant in establishing professional
standards in the requirements of practice before the Securities and
Exchange Commission as well as in his other auditing engage-
ments.
Another influential factor has been the American Institute of
Accountants' series of research and auditing bulletins that began
in 1940. The accounting profession had taken the lead in review-
ing auditing procedures and standards before the McKesson &
Robbins case was settled, but it was that case which caused the
profession to act.
The renegotiation of government contracts after the World
Wars and the increasing number of reports required by the federal
government gave rise to problems which the profession had to
solve. State societies and the American Institute of Accountants
were the organs through which accountants obtained information
about the government's requirements. Finally, after World War
II, the accounting and legal professions found themselves in con-
flict over the preparation of income tax returns, a conflict which
came out into the open in the Bercu case. The full effect of the
Bercu decision has not yet been felt by the profession, nor does the
question seem to be settled.
The tax practice conflict extended, in the 1950's, from the New
York State Bercu case, to Minnesota, with its Conway case, and to
California's Agron case. The strained relations between the legal
profession and that of the public accountant have not yet been
restored. However, the 1951 statement of the joint committee of
Summary 305
the American Bar Association and the American Institute has estab-
lished areas for future agreement.
Reliance on the independent auditor's opinion on financial
statements of many non-profit and regulated segments of the econ-
omy has significantly increased in recent years. The American In-
stitute of Certified Public Accountants recognized the expanding
areas of services to the public accountant by establishing commit-
tees dealing with the following: relations with bankers, accounting
for non-profit organizations, the special problems of audits of insur-
ance companies, and (at the suggestion of Phillip L. West, Vice
President of the New York Stock Exchange) relations with the In-
terstate Commerce Commission. These committee appointments
and their subsequent activities are major examples of the growing
acceptance of the certified public accountant's responsibility in all
segments of American society. Another example is the A.F. L.-
C.I. O. code, which calls for virtually all affiliated unions to have
independent audits.
A significant development in recent years in the practice of the
public accounting profession has been the growth in the manage-
ment services offered their clients. The magnitude of the develop-
ment of the new field has been such that the American Institute
issued a pamphlet on management services by CPA's indicating
areas of possible service. The intimate knowledge which the C.P.A.
gains from close association with his clients is one of the important
reasons why he can be expected to offer useful counsel and guid-
ance to management on various phases of business problems.
The national and international demands on various public ac-
counting firms brought about mergers within the profession and
the opening of offices throughout the world. The size of domestic
clients and the variety of their operating localities contributed to
the need for multiple locations of the public accounting firms. Also,
the large capital investments overseas stimulated the international
operations of many of the national public accounting firms.
Because of the national and international recognition of certified
public accountants, the American Institute adopted an official pol-
icy supporting regulatory C.P.A. legislation. Under the new policy,
the Institute will support state laws providing for the registration
of all accountants in public practice, either as C.P.A.'s or P.A.'s.
After an appropriate cutoff date for registration of all individuals
306 History of Public Accounting
already in practice, admission to the practice of public accountancy
will be limited to those who pass the C.P.A. examination.
The Commission on Standards of Education and Experience
created in 1952 recognized the importance of uniformity for en-
trance into the public accounting profession. The first step toward
uniformity— establishing of a standard C.P.A. examination— has
been taken; all fifty states now use the uniform examination. The
next step, agreement upon education and experience requirements,
is necessary before it will become feasible for C.P.A. certificates to
be readily issued on a reciprocal basis. The commission recom-
mended that the C.P.A. examination be given at the conclusion of
the training acquired through the formal educational process. Thus
the practical experience would follow rather than precede admis-
sion to the examination of the accountant who has completed the
recommended educational program. However, the Commission
clearly stated that the accountant who has been designated a C.P.A.
on the basis of prescribed educational preparation and satisfactory
completion of the C.P.A. examination is not an experienced prac-
titioner.
A Special Committee on Research, approved by the Council of
the American Institute, specifically proposed in its report that the
organization carrying out the new accounting research program
consist of an Accounting Principles Board and an accounting re-
search staff. This group would be the sole group in the Institute
having authority to make pronouncements on accounting prin-
ciples. The Accounting Principles Board would succeed the com-
mittees on accounting procedures and on terminology.
The Sixth and Seventh International Congresses on Accounting
were held in 1950, the former in England and the latter in the
Netherlands. The American George O. May, C.P.A., was the only
one present at the Sixth International Congress who had taken an
active part in the First International Congress held at St. Louis in
1904.
Three public utility companies which had been plaintiffs in the
case against the American Institute had obtained a series of tem-
porary injunctions preventing issuance of a letter interpreting
Accounting Research Bulletin Number 44 (Revised) which had
been approved by eighteen of the twenty-one members of the ac-
counting procedures committee. The plaintiffs did not challenge
the right of the Institute or its committee to issue opinions in the
Summary 307
field of accounting. Instead, they protested that the committee had
not submitted an "exposure draft" of its opinion to other interested
organizations. The right of the Institute to issue research bulletins
was affirmed by the United States Supreme Court. This was a wel-
come decision in that it came on the heels of the establishment of
the Accounting Principles Boards
The continuing influence of the Securities and Exchange Com-
mission is found in Haskins and Sells' Thomascolor case, O'Connell
and Company's Coastal Finance case, and Touche, Niven, Bailey &
Smart's Seaboard case. Also, a significant decision has been rendered
on the liability to third parties of all public accountants in the
C.I.T. case.
The work of the present-day public accountant is far different
from that in the beginning when accountants performed the ardu-
ous bookkeeping tasks of "untangling" accounts and checking the
work of bookkeepers. Today the services of public accountants are
sought in most forms of business and governmental operations on
matters ranging from taxation reports and auditing to business
policy. The fact that public accountants have risen to the status of
business consultants demonstrates the level to which the accountancy
profession has risen in the United States during the last half cen-
tury.
The profession of accounting has become established even though
it is still in a developmental stage. Corresponding to the rapid de-
velopment of the accounting profession is the intellectual interest
which is indicated by the new books appearing on the subject of
accounting and the appearance of numerous accounting journals
whose articles on different phases of accounting are contributed by
the top men in the field.
Accounting studies have been included in the institutions of
higher learning of the nation, and accounting has become a recog-
nized department in practically every college and university in the
United States. Graduate schools of business administration have
been established which provide intensive professional study in
accounting. An understanding of the fundamentals of accounting
is now almost indispensable for the lawyer, banker, or engineer:
in fact, for all who deal with business affairs, governmental opera-
tions, and activities of public control.
308
Bibliography
Books
American Institute of Accountants. Fiftieth Anniversary Celebration. New York:
The American Institute of Accountants, 1937.
— . How to Improve Accounting and Tax Service to American Business. New
York: The American Institute of Accountants, 1950.
— . Public Relations and Legislative Control of the Accounting Profession. New
York: The American Institute of Accountants, 1951.
-. Yearbook, 1913, 1917, 1918, 1921. New York: The American Institute of Ac-
countants.
Brown, Richard. A History of Accounting and Accountants. Edinburgh and Lon-
don: T. C. and E. C. Jack, 1905.
Buss, Lydus Henry. C. P. A. Examination Requirements. Urbana, Illinois: The
University of Illinois (American Accounting Association) College of Com-
merce and Business Administration, 1951.
Cambridge Modern History. New York: Macmillan and Company, 1908, Vol. 5;
1909, Vol. 6.
DeMond, C. W. Price, Waterhouse and Company in America. New York: The
Comet Press, Inc., 1951.
Eyre, George E. and William Spottiswoode. Statutes of the United Kingdom of
Great Britain and Ireland, 25th and 26th Victoria. Authors, 1862.
Green, Wilmer L. History and Survey of Accounting. Brooklyn, New York:
Standard Text Press, 1930.
Hanson, Arthur W. Problems in Auditing, 2nd Edition. New York: McGraw-Hill
Book Company, Inc., 1935.
Haskins, C. W. Business Education and Accountancy. New York: Harper and
Brothers, 1904.
Klein, Joseph J. Federal Income Taxation. New York: John Wiley and Sons,
Inc., 1929.
Littleton, A. C. Accounting Evolution to 1900. New York: American Institute
Publishing Company, Inc., 1933.
Lybrand, William M., Ross, Adam A., Ross, Edward T., and Montgomery,
Robert H. Fifieth Anniversary. Privately Printed, 1948.
May, George O. Twenty-five Years of Accounting Responsibility. New York:
American Institute Publishing Company, Inc., c. 1936. Vols. 1 and 2 bound
together.
Bibliography 309
Montgomery, Robert H. Fifty Years of Accountancy. New York: Ronald Press
Company, 1939.
New Jersey Society of Certified Public Accountants. Fifty Years of Service, 1898-
1948. Newark, New Jersey: New Jersey Society of Certified Public Accountants,
1948.
New York State Society of Certified Public Accountants. The New York State
Society of Certified Public Accountants— Fiftieth Anniversary. New York: New
York State Society of Certified Public Accountants, 1947.
Official Record of the Proceedings of the Congress of Accountants Held at the
World's Fair, St. Louis, 1904.
Peragallo, Edward. Origin and Evolution of Double-Entry Bookkeeping. New
York: American Institute Publishing Company, Inc., 1938.
Public General Statutes, The. Passed in the 32nd and 33rd Years of the Reign
of Her Majesty, Queen Victoria. London: G. E. Eyres and William Spottis-
woode, 1869.
Rich, Wiley Daniel. Legal Responsibilities and Rights of Public Accountant.
New York: American Institute Publishing Company, Inc., 1935.
Richards, George K. Statutes of the United Kingdom and Ireland, 25th and 26th
Victoria. London: Geo. E. Eyres and William Spottiswoode, 1862.
Smith, C. Aubrey. Internal Audit Control. Austin, Texas: The University Co-
operative Society, 1933.
Standards of Education and Experience for Certified Public Accountants,
Published for the Commission by the Bureau of Business Research, University
of Michigan, 1956.
Woolf, Arthur H. A Short History of Accountants and Accounting. London:
Gee and Company, 1912.
Bulletins and Pamphlets
Accounting Research Bulletins, Nos. 13, 15, and 17. New York: American
Institute of Accountants, 1942.
Anyon, James T. Recollection of the Early Days of Accounting. New York:
Author, 1925.
Bentley, H. C. A Brief Treatise on the History and Development of Accounting.
Boston: Bentley School of Accounting and Finance, 1929.
— . Committee on Management Services, Management Services by C.PA.'s,
American Institute of Certified Public Accountants, 1957, pp. 10.
Clader, Will-A. Is Public Accounting a Profession? June 2, 1950.
— . The Three-Class Public Accounting Law. January, 1947.
— . The Two-Class Accounting Law and Its Code of Ethics. December, 1946.
Haskins, Charles W. Accountancy— Its Past and Its Present. An address delivered
before the American Institute of Accountants; January 25, 1900.
Haskins, C. W., and Sells, E. W. The First Fifty Years, 1895-1945. New York:
Privately Printed, 1947.
310 History of Public Accounting
Littleton, A. C. Directory of Early American Public Accountants. Urbana,
Illinois: The University of Illinois, 1942.
New York Stock Exchange Yearbook, The. New York: New York Stock Ex-
change, 1951.
Rules of Professional Conduct. New York: American Institute of Certified Public
Accountants, January, 1959, pp. 19.
Statement of Touche, Niven, Bailey and Smart. With respect to the design of
the Securities and Exchange Commission in the Seaboard Commercial Cor-
poration Proceedings, 1958, pp. 20.
Young, Arthur. Arthur Young and the Business He Founded. New York:
Privately Printed, 1948.
Periodical Articles
'Accountancy in New York State," The Accountant, XXVII (September, 1901),
983-984.
'Accountancy in the States," The Accountant, XXII (June, 1896) , 504; XXII
(September, 1896), 744-745; XXII (November, 1896), 951-952; XXIII
(January, 1897), 52-55; XXIII (January, 1897); 99; XXIII (September,
1897) , 857-858; XXIV (April, 1898) , 349-350 and 376-377; XXV (April, 1899) ,
367-369; XXV (August, 1899) , 889; XXIX (November, 1903) , 1392; XXXVIII
(June, 1908), 824-825; LV (September, 1916), 397-399 and 189; LV (Novem-
ber, 1916) , 397-399; LVI (January, 1917) , 81.
'Accountants as Directors," The Journal of Accountancy, LXIX (March, 1940) ,
165.
'Accountants Found Negligent," The Journal of Accountancy, CI, (April,
1956), 5.
'Accountants in England from the Nineteenth Century," The Accountant, XLVI
(January, 1912) , 259-261.
'Accountant Not Liable to Third Parties," The Journal of Accountancy,
XLVIII (August, 1929), 124-125.
'Accountants and the New York Stock Exchange," The Journal of Accountancy,
LV (April, 1933) , 241-242.
'Accountants Necessary in Tax Practice," The Journal of Accountancy, XLI
(March, 1926) , 202.
'Accounting and the Securities and Exchange Commission," The Journal of
Accountancy, LXIII (May, 1937) , 323-324.
'Accounting Errors in Corporation Tax Bill," The Journal of Accountancy, VIII
(July, 1909) , 212-213.
'Accounting Firm Upheld," The Journal of Accountancy, XCVII (May, 1954),
520.
'Accounting for Special Reserves Arising Out of the War," Accounting Research
Bulletin, XIII (January, 1942), 111-118.
Bibliography 311
"Accounting for Terminated War Contracts," Accounting Research Bulletin,
XXV (April, 1945) , 203-214.
"Accounting for the Use of Special War Reserves," Accounting Research Bulle-
tin, XXVI (October, 1946) , 215-222.
"Accounting Organizations Oppose Administrative Practitioners Bill," The
Journal of Accountancy, LXXXV (March, 1948) , 187-188.
"Accounting Research and Accounting Principles," The Journal of Accountancy,
CVI (December, 1958) , 27-28.
"Accounting under Cost-Plus-Fixed-Fee Contracts," Accounting Research Bulle-
tin, XIX (December, 1942) , 155-162.
"Administration of Federal Securities Act," The Journal of Accountancy, LVI
(July, 1933) , 7.
"AFL-CIO Code of Union Financial Practices— Official Text," The Journal of
Accountancy, CIV (July, 1957) , 50-54.
"After Hearings, the S. E. C. Dismisses 1 1 (e) Proceedings Against Barrow, Wade,
Guthrie and Company Growing out of Drayer-Hanson Case," The Journal of
Accountancy, LXXXVII (June, 1949) , 507-516.
"Agran Case in Perspective, The," The Journal of Accountancy, CII (December,
1956), 29-31.
"Agran in Wonderland," The Journal of Accountancy, C (August, 1955) , 29-30.
"AIA Name Change Rejected," The Journal of Accountancy, CI (February,
1956), 7.
^Allen, C. E. "The Growth of Accounting Instruction since 1900," The Account-
' ing Review, II (June, 1927) , 150-166.
"Amalgamation of American Societies of Accountants," The Accountant, XXV
(June, 1899) , 660.
"Amalgamation in America," The Accountant, XCVI (March, 1937) , 372.
"American Accountants," The Accountant, XVII (May, 1891) , 329.
"American Accountants and the New York Stock Exchange," The Accountant,
LXXXVIII (May, 1933) , 627-628.
"American Accountants and the War," The Accountant, LVI (May, 1917) ,
429-430.
"American Association of University Instructors in Accounting," The Journal
of Accountancy, XXV (February, 1918), 155-156.
"American Bar Association Committee Lists Seven Tax Activities It Considers
to be Practice of Law," The Journal of Accountancy, XCI (February, 1951) ,
307.
"American Institute and Audit Procedure, The," The Accountant, C (February,
1939) , 263-267.
"American Institute's Fiftieth Anniversary, The," The Accountant, XCVI
(March, 1937) , 372.
"American Institute of Accountants," The Accountant, LVI (April, 1917) , 410;
LVII (December, 1917), 454-456; XC (February, 1934), 197-202.
312 History of Public Accounting
"American Institute of Accountants Board of Examiners," The Journal of Ac-
countancy, XXIV (July, 1917) , 1-20.
"American Society and the American Institute, The," The Certified Public
Accountant, III (October, 1924) , 242-247.
"American Stock Exchange and Financial Statements," The Accountant,
LXXXVIII (June, 1933) ,771.
"American War Taxes," The Accountant, LVI (May, 1917) , 479.
Andersen, Arthur. "Thirtieth Anniversary Report," The Arthur Andersen
Chronicle, IV (December, 1943) , 1-130.
Anderson, W. R. "The Surety Bond," The C.P.A. Bulletin, IV (October, 1925) ,
4-5.
Angus, Butterworth. "Some Early Episodes in the History of Accountancy," The
Accountant, CXVII (December, 1947) , 388-389.
"Another Chapter of the History," The Journal of Accountancy, XLVII (May,
1929) , 359-360.
Anyon, James T. "Early Days of American Accountancy," The Journal of
Accountancy, XXXIX (January, 1925) , 1-8; XXXIX (February, 1925) , 81-92;
XXXIX (March, 1925) , 161-169.
"Background, The," The Journal of Accountancy, XLVII (May, 1929) , 356-357.
Banks, Alexander S. "Problems Now Confronting the Public Accounting Pro-
fession," The Certified Public Accountant, III (January, 1924) , 17-20.
"Basis for Agreement between the Legal and Accounting Professions," The
Journal of Accountancy, LXXXIX (June, 1950) , 461-462.
Belser, F. C. "How the Universities Can Aid the Accounting Profession," The
Accounting Review, II (March, 1927) , 37-42.
"Bercu Case on Tax Practice Upheld in New York Court of Appeals," The
Journal of Accountancy, LXXXVIII (August, 1949) , 93.
"Bercu Decision Reversed/' The Journal of Accountancy, LXXXV (June,
1948), 452.
Blacklock, Frank. "The Profession of Accountancy, Viewed from an American
Standpoint," The Accountant, XXVI (January, 1900) , 13; XXVI (February,
1900) , 143 and 194; XXVI (March, 1900) , 253.
Blough, Carmon G. "The Relationship of the Securities and Exchange Com-
mission to the Accountant," The Journal of Accountancy, LXIII (January,
1937), 23-39.
"Board of Tax Appeals," The Journal of Accountancy, XXXVIII (November,
1924) , 205.
Boursy, Alfred V. "The Name of Paciolo," The Accounting Review, XVIII
(July, 1943) , 205-209.
Bowden, J. C. "Is It Regulative or Is It Restrictive?," The National Public
Accountant, I (November, 1946) , 27-29.
"Branch Office Ethics," The Journal of Accountancy, XXVIII (September,
1919), 212-216.
Bibliography 313
"Bright Prospects of Accountancy," The Journal of Accountancy, XVI (Decem-
ber, 1913) , 459-460.
Brown, Richard. "Recent Proposed Legislation Relating to the Profession,"
The Accountant, XX (July, 1894) , 669-672.
Brundage, Percival F. "The Bercu Case," The New York Certified Public Ac-
countant, XVII (May, 1947) , 277-279.
"Bureau of Research, A," The Journal of Accountancy, XLI (May, 1926) , 354.
Byrnes, Thomas W. "Reading— Permanent and Temporary," The New York
Certified Public Accountant, XVI (March, 1946) , 150-151.
Carey, John L. "One Man's View of the Sixth International Congress on Ac-
counting," The Journal of Accountancy, XCIV (September, 1952) , 306-310.
— . "The Place of the CPA in Contemporary Society," The Journal of Account-
ancy, CVI (September, 1958) , 27-32.
— . "Relationship of Accountants and Lawyers in Tax Practice," The Accounting
Review, XXVI (October, 1951) , 449-455.
— . "The Seventh International Accounting Congress," The Journal of Account-
ancy, CIV (December, 1957) , 34-38.
Cardozo, Benjamin N. "Text of the Ultramares Opinion," The American
Accountant, XVIII (February, 1931) , 54-56.
"Century of Professional Accountancy," The Accountant, XCI (February, 1934) ,
267-272; XCVI (April, 1937) , 521-529.
"Certificate of Incorporation of the National Association of Certified Public
Accountants," The C.P.A. Bulletin, II (December, 1923) , 3-5.
"Chartered Accountants," The Accountant, XVII (August, 1891), 585-586.
Chase, W. Arthur. "University Education of Accountant Students in United
States," The Accountant, LVII ( September, 1917) , 179-180.
"Chicago Stock Exchange Requires Certified Statements," The Journal of Ac-
countancy, LV (May, 1933) , 321-322.
"Choice of a Profession, The," The Journal of Accountancy, XIII (April,
1912) , 291-293.
Coates, Charles F. "State Legislation Relative to the Practice of Accountancy,"
The Journal of Accountancy, LXXXII (September, 1946), 221-229.
"College Degree as C.P.A. Prerequisite," The Journal of Accountancy, LXIII
(May, 1937) , 321-323.
"College of Accountants— Petition for It Sent to the University Regents, A,"
The Accountant, XVIII (June, 1892) , 520.
"Comment Released by.Haskins and Sells," The Journal of Accountancy, XCV
(January, 1953) , 84-85.
Committee on Terminology, "Terminology," Accounting Research Bulletin, VII
(November, 1940) , 51-66; IX (May, 1941) , 67-85.
"Conclusion of the Atlas Plywood Story," The Journal of Accountancy, CVI
(November, 1958) , 32-34.
"Congress of Accountants at St. Louis, The," The Accountant, XXXI (Decem-
ber, 1904) , 704-706 and 761-764.
314 History of Public Accounting
"Consolidation, The," The Certified Public Accountant, XVI (September,
1936), 516-517.
"Constitution and By-Laws of the American Society of Certified Public Ac-
countants," The Certified Public Accountant, II (August, 1923) , 213-215.
"Conway Decision, The," The Journal of Accountancy, XCII (September,
1951) , 289-290.
Cooper, Ernest. "Fifty-seven Years in an Accountant's Office," The Accountant,
LXV (October, 1921) , 553-563.
"Cooperation Between Accountants and Bankers," The Journal of Accountancy,
XCVIII (November, 1954) , 597-598.
"Cooperaton between Securities and Exchange Commission and Public Account-
ants," The Journal of Accountancy, LXXVI (August, 1943) , 155-158.
"Corporation Tax Correspondence, The," The Journal of Accountancy, VIII
(August, 1909) , 300-303.
"Council, The," The Journal of Accountancy, XCII (December, 1951) , 656.
"Court Decisions Affecting Accountancy," The Journal of Accountancy, XXXVII
(March, 1924) , 214-215.
"C.P.A. Denied Designation of Tax Consultant," The Journal of Accountancy,
LXXXVI (November, 1948) , 354.
"CPA Examiners Meet," The Journal of Accountancy, CIV (December, 1957) ,
10.
"CPA's' Tax Practice Seriously Threatened," The Journal of Accountancy,
XCVIII (August, 1954) , 161-163.
Cranstoun, William D. "Restrictive Legislation," New Jersey CP.A. Journal,
XXII (November, 1951) , 1-3.
Davies, W. Sanders. "Genesis, Growth and Aims of the Institute," The Journal
of Accountdncy,XlAl (August, 1926), 105-111.
"Debate on HR 3214 Making Tax Court a Court of Record," The Journal of
Accountancy, LXXXIV (September, 1947) , 249-261.
"Decision in Conway Appeal Holds Tax Consultant Practiced Law," The
Journal of Accountancy, XCII (August, 1951) , 135.
"Defects of Title 2 of the Federal Revenue Act of October 3, 1917," The Journal
of Accountancy, XXV (February, 1918), 81-90.
de Roover, Raymond. "Characteristics of Bookkeeping before Pacioli," The
Accounting Review, XIII (June, 1948) , 144.
— . "Lingering Influences of Medieval Practice," The Accounting Review, XVIII
(April, 1943) , 148-151.
— . "Paciolo or Pacioli?," The Accounting Review, XIX (January, 1944) , 68-69.
Dickinson, Arthur L. "The Profession of the Public Accountant," The Account-
ant, XXXII (May, 1905) , 650-658.
Dickinson, Arthur Lowes. "The American Association of Public Accountants,"
The Accountant, LXXIII (November, 1925) , 845-846.
Dieterle, D. Lyle. "An Analysis of Certified Public Accountants Examinations,"
The Journal of Accountancy, LXXII (August, 1941), 159-166.
Bibliography 315
"Dramatizing the Accounting Profession," The Journal of Accountancy, CVIII
(December, 1959), 28-29.
"Early Days of Accountancy," The Journal of Accountancy, XVI (October,
1913). 310-311.
"Education," The Accountant, XXVI (April, 1901) , 735-736.
"Education and Experience for CPAs," The Journal of Accountancy, CVIII
(June, 1959), 67-71.
"Education— Graduate School in Accounting," The Journal of Accountancy, CI
(May, 1956), 12-14.
"Educational Program of the American Institute," The Journal of Accountancy,
LXXIX (March, 1945) , 226-234.
"Education of English and American Accountants, The," The Accountant,
XXVI (April, 1907) , 764-765.
"Eighteenth Century Audit, An," The Journal of Accountancy, XXXVI (Octo-
ber, 1923) , 282-283.
"Employment of Lawyers by Accounting Firms," The Journal of Accountancy,
CIV (September, 1957) , 28-30.
"Enforcement of Rules of Conduct," The Journal of Accountancy, XXXVIII
(September, 1924) , 204.
Esenoff, Carl M. "Shall We Have Restrictive Legislation?," The California
Certified Public Accountant, XII (January, 1945) , 3-6.
"Exemption for Accountants," The Journal of Accountancy, XXVI (August,
1918), 212-215.
"Expanding Fields for Auditing," The Journal of Accountancy, CIV (July,
1957) , 23-24.
"Extensions of Auditing Procedure," The Accountant, C (June, 1939) , 850-854.
"Federal Income Tax, A," The Journal of Accountancy, XV (January, 1913),
58-61.
"Federal Incorporation of the Institute," The Journal of Accountancy, XXXIII
(April, 1922) , 286-288.
^"Fifty Years of Progress," The Journal of Accountancy, LXIII (March, 1937) ,
175-176.
"Financial Statements for Stock Exchange," The Journal of Accountancy, XLII
(July, 1926) , 37.
"For Federal Incorporation," The Journal of Accountancy, XXXIII (January,
1922) , 37-39.
Goldberg, Louis. "A Plague on Both Their Houses: The Accountant-Lawyer
Difference over Tax Practice," The Journal of Accountancy, LXXXIV (Sep-
tember, 1947) , 188-195.
Gordon, Spencer. "Accountants and the Securities Act," The Journal of Ac-
countancy, LVI (December, 1933) , 438-451.
— . "Liability of Accountants under Securities Exchange Act of 1934," The
Journal of Accountancy, LVIII (October, 1934) , 251-257.
316 History of Public Accounting
"Greatest Opportunity of All, The," The Journal of Accountancy, LV (May,
1933), 326-327.
"Great Responsibility and Great Opportunity," The Journal of Accountancy,
LV (February, 1933) , 82-83.
"Growth of Accountancy," The Accountant, LVII (August, 1917), 134-135.
^"Growth of Accountancy," The Journal of Accountancy, XXIII (April, 1917) ,
" 283-286.
Haskins, C. W. "History of Accountancy," The Accountant, XXVII (June,
1901) , 699-705.
"History of Accountants and Accountancy," The Accountant, XLV (July, 1911) ,
560-562, 597-600, 640-642, 670-671, 712-714, 748-750, 780-782, 823-824, 855-857,
and 901-903. XLVI (January, 1912) , 6-8, 44-46, 80-82, 124-126, 200-201, 259-
261, 308-311, 340-342, 379-382.
"History of the Accountancy Profession, A," The Accountant, XXI (April,
1895), 375-376.
"Holding the Accountant Responsible," The Journal of Accountancy, XXVIII
(July, 1919) , 39-42.
Hope, J. William. "Restriction Would Strengthen the Profession," The Ac-
counting Review, XX (April, 1945) , 194-198.
"House Passes Bill Making Tax Court a Court of Record," The Journal of
Accountancy, LXXXIV (September, 1947) , 180.
"How the Text Was Published," The Journal of Accountancy, XLVII (May,
1929) , 358-359.
"Hundred Years of Accountancy, A," The Accountant, XXVII (January, 1901) ,
37-40.
"Improvement in Relation between Accountants and Lawyers," The Journal of
Accountancy, LXXXIX (February, 1950) , 96-97.
"Income Tax, The," The Journal of Accountancy, XV (March, 1913), 185-
187; XVI (October, 1913) , 307-309.
"Income Tax Amendment," The Journal of Accountancy, XIX (April, 1915) ,
292-294.
"Income Tax Experts," The Journal of Accountancy, XXVII (February, 1919) ,
134-136.
"Income Tax in the United States," The Accountant, XLIX (December, 1913),
861.
"Independent Audits in America," The Accountant, CII (April, 1940) , 370-
372.
"Injunction against National Association of Certified Public Accountants," The
Journal of Accountancy, XXXVI (July, 1923), 30-31.
"Institute Dallas Meeting," The Certified Public Accountant, XVI (October,
1936) , 626-628.
"Institute Examinations," The Journal of Accountancy, XXIII (February,
1917), 132-133.
Bibliography 317
"Institute of Accountants in the United States, The," The Accountant, LV
(November, 1916) , 438-442, 444-445.
"Institute Rejects an Amendment, The," The Journal of Accountancy, XL
(November, 1925) , 355.
"Institute Wins Court Case," The Journal of Accountancy, CVIII (August,
1959), 7.
"Institute's Annual Meeting," The Journal of Accountancy, LXII (September,
1936) , 164.
"Institute's Right to Issue Accounting Opinions Upheld by Courts," The Jour-
nal of Accountancy, CVIII (August, 1959) , 23-24.
"Instructions for Verification of Financial Statements," The Journal of Ac-
countancy, XLVII (May, 1929) , 355-356.
"Interpretation of the Bercu Case, An" The Journal of Accountancy, LXXX-
VIII (September, 1949) , 255-256.
"Interstate Practice," The Journal of Accountancy, LXIX (March, 1940) , 165-
166.
Jay, Harry M. "Consolidation— Now What?," The Certified Public Accountant,
XVI (October, 1936) , 569-570.
Jackson, J. Hugh. "Accounting as a Profession," The Journal of Accountancy,
XL (September, 1925) , 161-172.
Jeal, E. F. "Some Reflections on the Evolution of the Professional Practice in
Great Britain," The Accountant, XCVI (April, 1937), 521-529.
Jennings, Alvin R. "Common Interests of Lawyers and Certified Public Ac-
countants," Lybrand Journal, XL (1959) , 3-17.
Johnson, Harlan. "New York Stock Exchange Questionnaire," The Journal of
Accountancy, XLVIII (July, 1929) , 18-26.
"Joint Report of Special Committee on Professional Relations of American Bar
Association and Committee on Relations with the Bar of American Institute
of Accountants," The Journal of Accountancy, CHI (January, 1957) , 53-54.
Jones, Charles W. "A Chronological Outline of the Development of the Firm,"
The Arthur Andersen Chronicle, IV (December, 1943) , 9rl6.
Joplin, J. Porter. "Growing Responsibilities of the Public Accountant," The
Journal of Accountancy, XXVIII (July, 1919) , 9-15.
Jordon, William P. "Accountancy and Law," The Journal of Accountancy,
LXXXIII (February, 1947) , 161-162.
''Journal and The American Association of Public Accountants, The," The
Journal of Accountancy, XXXII (November, 1921) , 538-539.
"Journal of Accountancy Has A Birthday, The," The Journal of Accountancy,
C (November, 1955) , 29-30.
"Jubilee of The Accountant, The," The Accountant, LXXI (October, 1924) ,
497-502.
Kats, P. "A Surmise Regarding the Origin of Bookkeeping by Double Entry,"
The Accounting Review, V (December, 1930) , 311-316.
318 History of Public Accounting
— . "Early History of Bookkeeping by Double Entry," The Journal of Account-
ancy, XLVII (March, 1929) , 203-210; XLVII (April, 1929) , 275-290.
"Kingston Cotton Mill Company, Lim., The," The Accountant Law Reports,
Supplement to The Accountant, XXII (November, 1895) , 201-202, 213-214;
XXIII (December, 1895) , 225-232.
"Kingston Cotton Mill Company [Court of Appeal], In re," The Accountant
Law Reports, Supplement to The Accountant, XXIII (May, 1896) , 77-78.
Kostelanetz, Boris. "Auditor's Responsibilities and the Law," The New York
Certified Public Accountant, XIX (February, 1949) , 91-97.
Lane, Chester T. "Cooperation with the Securities and Exchange Commission,"
The New York Certified Public Accountant, VIII (April, 1938), 5-11.
"Lawyer-C.P.A. Cooperation," The Journal of Accountancy, CVII (March,
1959), 27-28.
"Lawyers and Accountants," The Journal of Accountancy, LXXVII (April,
1944), 268; LXXVII (June, 1944), 429; LXXVII (June, 1944), 511-512;
LXXXI (February, 1946) , 90-91; XCI (June, 1951) , 869.
"Lawyers Testify on Administrative Practitioners Bill," The Journal of Ac-
countancy, LXXXIV (September, 1947) , 178-180.
"Lawyers View of Accountants Practice before Tax Court," The Journal of
Accountancy, LXXXV (May, 1948) , 428-434.
"Legislation for Accountants in the States," The Accountant, XXII (May,
1896) , 427, 504, 763.
"Legislation Regulating Professions," The Journal of Accountancy, CIX (Jan-
uary, 1960) , 27-28.
Leland, Thomas W. "Educational Program of the American Institute of Ac-
countants," The Journal of Accountancy, LXXIX (March, 1945) , 226-234.
Lenhart, Norman J. "Development in Auditing Procedures since the Extension
of Such Procedures in 1939," The New York Certified Public Accountant,
XVI (September, 1947) , 565-567.
Levy, Saul "The C.I.T. Case," The Journal of Accountancy, C (October, 1955) ,
31-42.
"Liability in Question," The Journal of Accountancy, L (August, 1930) , 81-
85.
"Library of The Institute, The," The Accountant, XIX (December, 1893) , 956-
958.
Lilly, Lewis. "Restrictive Legislation and Its Concomitants," The California
Certified Public Accountant, XII (January, 1945) , 7-9.
Littleton, A. C. "Auditor Independence," The Journal of Accountancy, LIX
(April, 1935) , 283-291.
— . "Evolution of the Ledger Account," The Accounting Review, I (December,
1926) , 12-23.
— >. "Italian Double Entry in Early England," The Accounting Review, I (June,
1926), 60-71.
Bibliography 319
— . "Social Origins of Modern Accountancy," The Journal of Accountancy, LVI
(October, 1933) , 261-270.
— . "The Antecedents of Double Entry," The Accounting Review, II (June,
1927) , 140-149.
— . "The Development of Accounting Literature," Publication of the American
Association of University Instructors in Accounting, IX (April, 1925) , 7-17.
— . "The Evolution of the Journal Entry," The Accounting Review, III (Decem-
ber, 1928) , 383-396.
Lockwood, Jeremiah. "Early University Education in Accounting," The Ac-
counting Review, XIII (June, 1938), 131-144.
"Long-Range Objectives of the Accounting Profession," The Journal of Ac-
countancy, CVII (May, 1959) , 71-73.
McCrea, Roswell C, and Kester, Roy B. "A School of Professional Accountancy,"
The Journal of Accountancy, LXI (February, 1936), 106-117.
McLaren, Norman L. "The Influence of Federal Taxation upon Accountancy,"
The Journal of Accountancy, LXIV (December, 1937) , 426-439.
"Many Accounting Practices Have Been Merged in Recent Months," The
Journal of Accountancy, XCI (January, 1951) , 68-69.
Masters, J. E. "The Accounting Profession in the United States," The Journal
of Accountancy, XIX (January, 1915) , 349-355; XX (November, 1915) , 349-
355.
f — . "The Accounting Profession in the United States," The Accountant, LIII
(December, 1915) , 724-726.
Maxwell, David F., and Charles, William. "National Conference of Lawyers and
Certified Public Accountants," The Journal of Accountancy, LXXXI (Feb-
ruary, 1946) , 120-126.
May, George O. "Accounting and Regulation," The Journal of Accountancy,
LXXVI (October, 1943) , 295-301.
— . "Influence of the Depression on the Practice of Accountancy," The Journal
of Accountancy, LIV (November, 1932) , 336-350.
— . "The Position of Accountants under the Securities Act," The Journal of
Accountancy, LVII (January, 1934) , 9-23.
Meade, Edward S. "Established Preliminary Examinations in Law and Econ-
omics," The Journal of Accountancy, III (January, 1907) , 193-195.
Miller, Henry J. "The American Society and The American Institute," The
Certified Public Accountant, V (December, 1925), 157-162.
"Momentous Decision, A," The Journal of Accountancy, XLVIII (August,
1929) , 125-127.
" 'Monopoly' Charge Against Certified Public Accountants, The," The Journal
of Accountancy, LXXXVI (November, 1948), 355.
"More Professional Education," The Journal of Accountancy, CVI (June,
1958) , 25-26.
Murphy, Mary E. "An Accountant in the Eighties," The Accountant, CXVII
(July, 1947) , 53-54; CXVII (August, 1947) , 67-68, 85-86.
320 History of Public Accounting
— . "Notes on Accounting History," Accounting Research, I (January, 1950) ,
275-280.
— . "The Profession of Accountancy in England: The Client and the Investor,"
The Accounting Review, XV (June, 1940) , 241-260.
— . "The Profession of Accountancy in England: The Public, the Government,
the Profession," The Accounting Review, XV (September, 1940), 328-343.
— . "The Rise of Accountancy in England," The Accounting Review, XV
(March, 1940), 62-73.
Musaus, William P. "What Is a C.P.A.?," The Journal of Accountancy, XX
(December, 1915) , 438-450.
"Name Change Approved," The Journal of Accountancy, CHI (January, 1957) ,
8.
"National Aspects of Public Accounting," The Journal of Accountancy, XIX
(January, 1914) , 46-50.
"National Conference of Lawyers and Certified Public Accountants," The
Journal of Accountancy, XCI (June, 1951) , 869-871.
Nau, Carl H. "The Aims of the Institute," The Journal of Accountancy, XXXI
(May, 1921), 321-328.
— . "The American Institute of Accountants," The Journal of Accountancy,
XXXI (February, 1921) , 103-109.
Neiven, John B. "Income Tax Department," The Journal of Accountancy,
XVI (November, 1913) , 384-407.
"New Department, A," The Journal of Accountancy, XVI (November, 1913) ,
373-374.
"New Solutions for New Problems," The Journal of Accountancy, CV (March,
1958) , 29-30.
"New York County Lawyers Association Answers a Question on Ethics," The
Journal of Accountancy, LXXXIX (January, 1950) , 71-72.
"Official Summary of SEC Accounting Series Release Number 78 and State-
ments of Touche, Niven, Bailey and Smart," The Journal of Accountancy,
CIV (June, 1957) , 60-64.
"Oklahoma C.P.A. Law," The Journal of Accountancy, XXIII (May, 1917),
368-369.
"One National Organization, "Bulletin of the American Institute of Account-
ants, CLI (November, 1936) , 3-8; CLII (December, 1936) , 3.
Payne, Robert E. "The Effect of Recent Laws on Accountancy," The Account-
ing Review, X (March, 1935) , 84-95.
Peloubet, Maurice E. "Professional Societies and Professional Men," The
Journal of Accountancy, LXXII (October, 1941) , 323.
Peragallo, Edward. "Origin of the Trial Balance," The Journal of Accountancy,
LXXII (November, 1941) , 448-454.
Phillips, Jay. "A Summary of State Legislation during the 1946-1947 Season
Affecting Accountants," The Journal of Accountancy, LXXXIV (August,
1947), 131-137.
Bibliography 321
"Post- War Refund of Excess-Profits Tax," Accounting Research Bulletin, XVII
(December, 1942) , 147-150.
"Practice before Government Agencies," The Journal of Accountancy, LXXX-
III (June, 1947) , 533-535.
"Practice before the Tax Board," The Journal of Accountancy, XXXVIII
(November, 1924) , 205-206.
"Practice before Treasury Department," The Journal of Accountancy, LXVIII
(July, 1939) , 1-2; LXVIII (August, 1939) , 79.
"Practice before Treasury Department Clarified," The Journal of Accountancy,
CI (April, 1956) , 29-30.
"Preparation of Tax Returns," The Journal of Accountancy, XXV (June,
1918), 447-451.
"Present Status of the Profession," The Journal of Accountancy, I (November,
1905) , 1.
"Profession in Scotland, the Corporation of Accountants dim., and the Scot-
tish Societies of Chartered Accountants, the Use of the Initials M.C.A., "The
Accountant, XXIX (November, 1903), 1433-1448 and 1475-1476.
"Profession in the States, The," The Accountant, XVII (November, 1891), 782.
"Professional-New Institute Research Program," The Journal of Accountancy,
CVIII (June, 1959) , 7.
"Proposed Amendments to By-Laws," The Certified Public Accountant, XVII
(February, 1937), 10.
"Public Accountant in Chicago, The," The Accountant, XXV (April, 1899),
349-350 and 395.
"Public Accountant's Work," The Accountant, XVII (June, 1891), 430.
"Public Accountants and Accounting Legislation," The Journal of Accountancy,
LXXXIX (February, 1950) , 97-98.
"Public Accountants and the Institute's Legislative Policy," The Journal of
Accountancy, CVII (January, 1959) , 25-26.
"Public Accountants and Regulatory Legislation," The Journal of Accountancy,
LXXXII (November, 1946) , 361-362; LXXXIII (January, 1947) , 6-7.
"Public Accountants and Regulatory Legislation, The," Massachusetts Society of
C.P.A.,Inc.,XX (January, 1947), 19-21.
"Public Interest in Regulatory Accounting Legislation, The," The Journal of
Accountancy, LXXXIII (April, 1947) , 275.
"Purposes of Accounting," The Journal of Accountancy, XXXII (August,
1938) , 74-76.
"Questions of Constitutionality," The Journal of Accountancy, XLI (June,
1926), 444-445.
"Railroad Accounting," The Journal of Accountancy, CIII (May, 1957) , 25-26.
"Railroad Accounting Committee," The Journal of Accountancy, CII (August,
1956) , 7.
"Railroad Accounting Procedures," The Journal of Accountancy, CIV (Novem-
ber, 1957), 69-79.
322 History of Public Accounting
Rand, Waldron H. "Growth of the Profession," The Journal of Accountancy,
XXVII (June, 1919) , 412-419.
Reckitt, Ernest. "History of Accountancy in the State of Illinois," The Journal
of Accountancy, LXIX (May, 1940) , 376-380.
"Recollections of an Old Accountant," The Accountant, LI (September, 1914) ,
72.
"Record of The American Institute of Accountants, The," The Accountant,
LVII (December, 1917) , 453-454.
"Regulatory Accountancy Legislation," The Journal of Accountancy, LXXVIII
(December, 1944) , 443-444.
Reimerth, C. H. "Historical Review of Accounting," The Certified Public Ac-
countant, VI (May, 1926) , 138-140.
"Reminiscences of the Profession in Pre Institute Days," The Accountant, LI
(November, 1914) , 521-524.
"Renegotiation of War Contracts, The," Accounting Research Bulletin, XV
(September, 1942) , 123-134.
"Renegotiation of War Contracts," Accounting Research Bulletin, XXI (Decem-
ber, 1943), 171-177.
"Report to Council of the Special Committee on Research Program," The
Journal of Accountancy, CVI (December, 1958) , 62-68.
"Restrictive Act Upheld," The Journal of Accountancy, LXIII (January, 1937) ,
10.
Rose, Bernard. "Responsibility of Auditors," The Journal of Accountancy,
XXXV (May, 1923), 335.
Ross, F. A. "Growth and Effect of Branch Offices," The Journal of Accountancy,
XXX (October, 1920) , 252-261.
Ross, T. Edward. "Random Recollections of an Eventful Half Century," The
Journal of Accountancy, LXIV (October, 1937) , 256-278.
Sanders, T. H. "Corporate Information Required by Federal Security Legisla-
tion," The New York Certified Public Accountant, V (April, 1935) , 9-22.
— . "Recent Accounting Developments in the United States," The Accountant,
C (April, 1939) , 535-544.
"S.E.C. Accounting Series Release No. 73: The Thomascolor Case," The Journal
of Accountancy, XCV (January, 1953) , 83-84.
"SEC Criticizes CPA's Report," The Journal of Accountancy, CIV (June, 1957) ,
10-14.
"Securities and Exchange Commission," The New York Certified Public Ac-
countant, XI (January, 1941) , 274-277.
"Securities and Exchange Commission Release on Independence of Public
Accountants," The Journal of Accountancy, LXXVII (March, 1944) , 179-
181.
Sells, C. W. "The Accountant of 1917," The Journal of Accountancy, III (Feb-
ruary, 1907), 297-299.
Bibliography 323
Sells, Elijah W. "The Accounting Profession— Its Demands and Its Future,"
The Journal of Accountancy, XX (November, 1915) , 325-333.
"Significance of an Accountant's Certificate," The Journal of Accountancy,
XLI (January, 1926) , 33-34.
"Single National Organization, A," The Certified Public Accountant, XV
(October, 1935) , 604-610.
Smith, C. Aubrey. "Accounting Practice under the Securities and Exchange
Commission," The Accounting Review, X (December, 1935) , 325-332.
— . "Education for the Professional Accountant," The Accounting Review, XX
(January, 1945) , 17-23.
Smith, Frank P. "Accounting Requirements of Stock Exchanges," The Account-
ing Review, XII (June, 1937) , 145-153.
Smith, T. Savage. "The Education of Accountants: What They Ought to
Learn, and How They Are to Learn It," The Accountant, XXI (December,
1894) , 201-204.
Snell, Frank L. "Coordinating Professional Services of the Lawyer and the
Accountant," The Journal of Accountancy, LXXIX (April, 1945) , 291-294.
"Solicitors Acting as Accountants," The Accountant, XVII (October, 1891),
709.
^'"Some Notes on the Profession of Accountancy," The Accountant, XXII (Octo-
^ ber, 1896) , 841-849.
" 'Something for Nothing' Accounting Legislation," The Journal of Accountancy,
LXXXVII (January, 1949) , 2-3.
"Spread of Accountancy Legislation, The," The Journal of Accountancy, XVI
(July, 1913) , 64.
Springer, D. W. "Institute-Society-Institute," The Certified Public Accountant,
XVI (December, 1936) , 743-751.
— . "Regulatory Legislation," The Certified Public Accountant, XVI (September,
1936), 522-531.
"St. Louis Congress of Accountants, The," The Accountant, XXXI (December,
1904) , 737-741.
Starkey, Rodney F. "Practice under the Securities Act of 1933 and the Securities
Exchange Act of 1934," The Journal of Accountancy, LVIII (December,
1934) , 431-447.
"State Society Anniversaries," The Journal of Accountancy, CHI (March,
1957) , 14.
Stempf, Victor H. "The Securities and Exchange Commission and the Ac-
countant," The New York Certified Public Accountant, VIII (April, 1938) ,
12-16.
Sterrett, Joseph E. "Progress in the Accounting Profession," The Journal of
Accountancy, VIII (November, 1909) , 11-16.
— . "The Development of Accountancy as a Profession," The Journal of Ac-
countancy, VII (February, 1909) , 265-273.
324 History of Public Accounting
Stewart, Andrew. "Accountancy and Regulation Bodies in the United States,"
The Journal of Accountancy, LXV (January, 1938) , 33-60.
"Stock Exchange Demands Audits of Listed Companies," The Journal of Ac-
countancy, LV (February, 1933) , 81-82.
Suffern, Edward L. "Twenty-five Years of Accountancy," The Journal of Ac-
countancy, XXXIV (September, 1922) , 174,181.
"Supreme Court Review Requested," The Journal of Accountancy, CVIII
(November, 1959), 7.
"Survey of Women CPAs," The Journal of Accountancy, CIII (February,
1957) , 16-17.
"Suspension of Accountants by SEC— A Dangerous Precedent," The Journal of
Accountancy, XCV (January, 1953) , 33-34.
"Tax Practice in Kentucky," The Journal of Accountancy, CIII (March, 1957) ,
8-9.
"Tax Practice and the Practice of Law," The Journal of Accountancy, LXXXII
(December, 1946) , 452-453.
Taylor, R. Emmett. "Pacioli," The Accounting Review, X (June, 1935) , 168-
173.
— . "The Name of Pacioli," The Accounting Review, XIX (January, 1944) , 69-
76.
"Ten Years of Securities and Exchange Commission," The Journal of Account-
ancy, LXXIX (June, 1945) , 427-428.
"Testimony of Expert Witnesses at S.E.C. Hearings," The New York Certified
Public Accountant, IX (April, 1939) , 313-336.
"Testimony on Administrative Practitioners Bill," The Journal of Accountancy,
LXXXIV (September, 1947) , 261-264.
"Text of the Bercu Case," The Journal of Accountancy, LXXXIII (April, 1947) ,
342-348.
"Text of Court Order Reversing Supreme Court in Bercu Case," The Journal
of Accountancy, LXXXVI (November, 1948) , 428.
"Text of the Decision of the Municipal Court of Los Angeles in the Agran
Tax Practice Case," The Journal of Accountancy, C (July, 1955), 72-75.
"Text of Opinion in Conway Case: Minnesota Supreme Court Upholds Con-
viction of 'Tax Expert' for Unauthorized Practice of Law," The Journal of
Accountancy, XCII (September, 1951) , 331-337.
"Thirty Thousand Members," The Journal of Accountancy, CIV (October,
1957) , 30.
"The Top News Stories of 1956," The Journal of Accountancy, CIII (January,
1957) , 5-16.
"Toward One Accounting World," The Journal of Accountancy, XCIV (Aug-
ust, 1952) , 163-164.
"Treasury Practice Rules Eased," The Journal of Accountancy, CVI (Decem-
ber, 1958) , 7.
Bibliography 325
. ^Trend of Modern Accountancy," The Journal of Accountancy, XLI (January,
1926) , 1-8.
"United States Income Tax," The Accountant, XLIX (August, 1913) , 152.
"University Education of Accountant Students in the United States," The Ac-
countant, LVII (September, 1917) , 179-180.
"Use of Designation 'Tax Consultant' Is Challenged," The Journal of Ac-
countancy, XC (July, 1950) , 5-6.
"Use of Term 'Tax Consultant' Opposed by American Bar Association Study-
ing Committee on Unauthorized Practice of Law," The Journal of Account-
ancy, XCI (February, 1951) , 306-307.
"Verification of Financial Statements," The Accountant, LXXXI (July, 1929) ,
115-124.
Walton, Seymour. "Relation of the Commercial Lawyer to the C.P.A.," The
Journal of Accountancy, VII (January, 1909) , 205-213.
Watson, Albert J. "Practice under the Securities Exchange Act," The Journal
of Accountancy, LIX (June, 1935) , 434-445.
Webster, Norman E. "College Education as a Requirement for Certified Public
Accountants— The New York Experience," The Accounting Review, XXI
(October, 1946) , 445-450.
— . "Congress of Accountants," The Journal of Accountancy, LXXVIII (Decem-
ber, 1944) , 513-514.
^-. "Early Movements for Accountancy Education," The Journal of Accountancy,
LXXI (May, 1941) , 441-450.
— . "Planned Examinations," The Journal of Accountancy, LXXV (April, 1943) ,
348-352.
— . "The Meaning of 'Public Accountant,' " The Accounting Review, XIX
(October, 1944) , 366-376.
Weidenhammer, Robert. "The Accountant and the Securities Act," The Ac-
counting Review, VIII (December, 1933) , 272-278.
"What Does the Bercu Decision Mean?," The Journal of Accountancy, LXXX-
VIII (September, 1949) , 185-187.
"What's In a Name?," The Journal of Accountancy, CIV (June, 1957) , 30.
"Why the Original Text Was Written," The Journal of Accountancy, XLVI1
(May, 1929) , 357.
Wilcox, E. B. "The Pros and Cons of Regulatory Legislation," The Indiana
Certified Public Accountant, III (May, 1948), 3-4.
Wildman, J. R. "Early Instruction in Accounting," The Accounting Review, I
(March, 1926) , 105-107.
Wilkinson, George. "Organization of the Profession in Pennsylvania," The
Journal of Accountancy, XLIV (September, 1927), 161-169.
— . "The Accounting Profession in the United States," The Journal of Ac-
countancy, X (September, 1910) , 339-347.
— . "The Genesis of the C.P.A. Movement," The Certified Public Accountant,
VIII (September, 1928) , 261-266; VIII (October, 1928) , 297-300.
326 History of Public Accounting
Winn, William R. "The Case against Regulatory Accountancy Legislation,"
The South Carolina Certified Public Accountant, V (October, 1947), 5-10.
— . "The Case against Regulatory Accountancy Legislation," The Journal of
Accountancy, LXXXV (February, 1948), 151-154.
Laws and Legal Decisions
National Surety Corp. v. Lybrand, 256 App. Div. 226, 9 B. Y. 52d 554 (1939)
New York Laws, 1896, Ch. 312.
Securities Act of 1933, An Act of May 27, 1933, 48 Stat. 74.
Securities Exchange Act of 1934, An Act of June 6, 1934, 48 Stat. 881.
State v. Riedell, 109 Okla. 35, 233 Paci. 685 (1924) .
State Street Trust Co. v. Alwin C. Ernst, 278 N. Y. 101 (1938) .
Ultramares Corp. y. Touche, 255 N. Y. 170, 174 N.E. 441, 442 (1931) .
William R. Craig v. James T. Any on, 242 N. Y. 569 (1926) .
Unpublished Material
Board of Regents of The University of Texas, Minutes, May 13, 1917.
Letter from Donald H. Cramer, Partner in Touche, Ross, Bailey 8c Smart, to
James D. Edwards, dated January 14, 1960.
Letter from C. W. DeMond, Partner in Price, Waterhouse and Company, to
James D. Edwards, dated May 6, 1952.
Letter from L. S. Dunham, Personnel Manager of Arthur Young & Company, to
James D. Edwards, dated January 21, 1960.
Letter from Firman H. Hass, Resident Partner in Ernst & Ernst, to James D.
Edwards, dated January 19, 1960.
Letter from Robert Kane, Educational Director of the American Institute of
Accountants, to James D. Edwards, dated June 2, 1952.
Letter from J. A. Lindquist, Partner in Ernst and Ernst, to James D. Edwards,
dated May 21, 1952.
Letter from Carl A. Newlin, Jr., Manager of Peat, Marwick, Mitchell 8c Com-
pany, to James D. Edwards, dated February 18, 1960.
Letter from Frank P. Smith, Director of Education Sc Personnel of Lybrand,
Ross Bros. Sc Montgomery, to James D. Edwards, dated January 22, 1960.
Letter from E. V. Thompson, Partner in Price, Waterhouse 2c Company, to
James D. Edwards, dated February 8, 1960.
Letter from Norman E. Webster, Chairman of the History Committee of the
American Institute of Accountants, to James D. Edwards, dated October 16,
1951.
Bibliography 327
Letter from Paul D. Williams, Arthur Andersen & Company, to James D. Ed-
wards, dated January 13, 1960.
Lovette, James B. "History of Accounting in the United States." Unpublished.
14 typewritten pages.
McLaren, Norman. "Evaluation of American Accountancy." Unpublished. 8
typewritten pages.
V
Appendix A
FIRST C.P.A. EXAMINATION GIVEN IN THE
UNITED STATES
The following is a list of questions given to Certified Public Ac-
countant Candidates by the University of the State of New York
under these regulations:
The examination for public accountants required by the Act of Congress
recently passed was held on the 15th of and 16th of December, 1896. There
were four papers to be answered by the candidates for the degree C.P.A. (Cer-
tified Public Accountant) . As the Accountancy subjects will be of interest to
our readers, we reprint them:—
University of the State of New York. Examination Department.
1st ACCOUNTANT EXAMINATION
Theory of Accounts.
Tuesday, December 15th, 1896-9:15 A.M. to 12:15 P.M. Only.
"The Regents of the University shall make rules for the examination of per-
sons applying for certificates under this act, and may appoint a board of three
examiners for the purpose. ..." Laws of 1896, Ch. 312, s.2.
One Hundred credits; necessary to pass, seventy-five. Answer questions 1, 2, 4, 8,
13, and five of the others, but no more. If more than five of these other ques-
tions are answered, only the first five of these answers will be considered. Each
complete answer will receive ten credits. Do not repeat questions, but write
answers only, designating by number, as in question paper.
Check the number (y) of each one of the questions you have answered. Use
one side of sheet only.
Appendix A 329
1. State the essential principles of double entry bookkeeping, and show wherein
it differs from single entry bookkeeping.
2. Describe the following, and show wherein they differ: (a) Trial Balance,
(b) Balance Sheet, (c) Statement of Affairs, (d) Realization and Liquidation
Account.
3. In devising a system of accounts for a business, what are the main subjects
for consideration, and in what order should they have attention?
4. Describe the following, and show wherein they differ: (a) Revenue Account,
(b) Trading Account, (c) Profit and Loss Account, (d) Deficiency Account.
5. State the purpose for which series of perpendicular columns are employed in
books of original entry, and how these purposes may be accomplished relative
to the following conditions: (a) several Ledgers comprehended in one system
of accounts, (b) several departments comprehended in one business, (c) several
accounts comprehended in income and expenditure.
6. Describe the following and show wherein they differ: (a) statement of in-
come and expenditure, (b) statement of receipts and payments.
7. Describe a method of keeping accounts so that the aggregate sums due from
customers and due to creditors can be known without preparing a schedule of
the accounts of such customers and creditors, and so that an independent bal-
ance of the Ledger, containing only the real, nominal, special and controlling
accounts, exclusive of the individual accounts of customers and of trade
creditors, may be taken.
8. Define and differentiate: (a) capital and revenue, (b) capital receipts and
revenue receipts, (c) capital expenditure and revenue > expenditure.
9. How may the accounts in a Trial Balance be best arranged to facilitate the
preparation of a business and financial statement?
10. Define and differentiate: (a) fixed assets and cash assets, (b) fixed liability
and floating indebtedness, (c) fixed charges and operating expense.
11. Describe the following kinds of accounts: (a) personal, (b) impersonal,
(c) real, (d) nominal, (e) current, (f) summary.
12. Describe the process and state some of the purposes of analysing a Ledger.
330 History of Public Accounting
13. Describe the nature of the following accounts: (a) sinking fund, (b) reserve
fund, (c) redemption fund, (d) depreciation fund, (e) contingent fund, (f)
investment fund.
14. Define the following: (a) stock, (b) capital, (c) surplus, (d) deficiency,
(e) capital stock, (f) preferred stock, (g) common stock, (h) share capital,
(i) loan capital.
15. Describe the nature of the following accounts: (a) merchandise, (b) con-
struction, (c) consignment, (d) joint, (e) subscription, (f) expense, (g)
maintenance, (h) venture, (i) suspense, (j) dividend.
Practical Accounting
Tuesday, December 15th, 1896-1:15 to 4:15 P.M. Only.
One hundred credits; necessary to pass, seventy-five.
Answer questions one and two and two of the others, but no more. If more than
two of these other questions are answered, only the first two of these answers
will be considered. Each complete answer will receive twenty-five credits. Do
not repeat questions but write answers only. Check the number (^f) of each
one of the questions you have answered. Use one side of sheet only.
1. Jones and Robinson, merchants, are unable to meet their obligations. From
their books and the testimony of the insolvent debtors the following statement
of their condition is ascertained:
Cash on hand $ 5,500.00
Debtors: $1,000 good; $600 doubtful; but estimated to produce
$200; $1,000 bad 2,600.00
Property, estimated to produce $9,000 14,000.00
Bills receivable, good 4,250.00
Other securities: $3,000 pledged with partially secured creditors;
remainder held by the fully secured creditors 28,000.00
Jones, drawings 9,000.00
Robinson, drawings 8,400.00
Sundry losses 13,500.00
Trade Expenses 7,400.00
Creditors, unsecured 25,000.00
Creditors, partially secured 23,900.00
Creditors, fully secured 17,000.00
Preferential claims: wages, salaries and taxes 700.00
Jones, Capital 10,000.00
Robinson, Capital 16,050.00
Appendix A 331
Prepare a statement of affairs, showing the liabilities and the assets, "with respect
to their realisation and liquidation; also a Deficiency Account, showing such of
the above stated particulars as would account for the deficiency shown by the
statement of affairs.
2. A., B. and C. enter into partnership, January 1st, 1895. A. contributes
$8,500, B. $5,500 and C. $4,500. The profits and losses are to be divided in the
same proportion. December 31st, 1895, the partners agree that, before dividing
profits and losses, there shall be charged, as an expense of the business, and
placed to their individual credits, salaries as follows: A., $800, B., $700, C, $600.
December 31st, 1895, the Trial Balance of their books showed the following:
Capital, A
$ 8,500.00
Capital, B
5,500.00
Capital, C
4,500.00
Cash on hand and in bank
$ 1,900.48
Stock, January 1, 1895
11,550.00
Purchases
51,666.70
Sales
25,650.80
Plant and fixtures
2,068.92
Book accounts receivable including consignments
20,745.83
Consignments
33,822.70
Trade creditors
14,855.66
Loan Account
6,250.00
Loan interest
125.00
Salaries
1,257.00
Wages
2,025.00
Trading expenses
1,052.65
Interest and discount
1,273.45
Losses on exchange
2,108.00
Commissions
3,510.20
Drawings, A. (includes $800 salary allowance)
2,750.25
Drawings, B. (includes $700 salary allowance)
2,345.65
Drawings, C. (includes $600 salary allowance)
1,970.43
$102,714.36
$102,714.36
Their inventory of stock on hand, December 31st, 1895, amounted to $11,337.50.
Unexpired insurance premiums, $91. December 31st, 1895, $300 was paid for
January (1896) rent in advance.
Prepare a Trading Account (cost as against proceeds) , a Profit and Loss ac-
count, and a Balance Sheet; also partners' capital Accounts as of December
332 History of Public Accounting
31st, 1895, allowing 6 per cent interest on capital and reserving 2\/ 2 P er cent
for losses on consignments.
3. A. buys a gas business at receiver's sale, taking over the entire plant, subject
to a bonded indebtedness of $9,500. A. sells the same to the B. gas company
incorporated under the laws of the State of New York, for the purpose of
acquiring this property from him, and having an authorized capital of $30,000,
divided into 300 shares of $100 each. C, D., and E. subscribe each for one
share of the capital stock of the company, and the company purchases the
property from A. for 297 shares and assumes the bonded indebtedness stated.
On making and appraising an inventory of the property for the purpose of
distribution to proper accounts, the following conservative values, exclusive of
good-will, franchise rights, etc., are ascertained:
Land $ 2,000.00
Buildings 6,000.00
Coal-gas plant, machinery and fittings 3,800.00
Water-gas plant, machinery and fittings 6,000.00
Mains 27,000.00
Meters 1,200.00
Supplies 1,500.00
Office furniture and fixtures 300.00
Sundry and other items 1,200.00
$49,000.00
Frame the necessary entries to open the company's books and show the capital
stock and the fixed assets on the face of the ledger. Prepare a balance sheet.
4. Three partners invest capital as follows: A. $100,000, B. $60,000, C. $40,000.
On this basis of capital investment, which is to remain intact, they share profits
and losses in the proportion of A. 47^ per cent., B. 27^ per cent., C. 25 per
cent., in addition to specified salaries.
At the end of the year the partnership terminates with a loss of $10,000, which
includes the salaries drawn by the partners. It appears that C. had drawn
against prospective profits to the amount of $5,000, and thereby impaired his
capital investment by said amount. They discontinue business and proceed to
liquidate and distribute the surplus assets monthly as realized. C. engages in
other business, leaving A. and B. to attend to the realization and liquidation
of the firm's affairs. A. and B. jointly are to charge C. 5 per cent, for collecting
and paying to him his share in the surplus assets.
Appendix A
333
The amounts collected monthly, less liabilities liquidated and expenses and
losses on realisation (exclusive of the 5 per cent, collection charged to C, the
amount of which is to be equally divided between A. and B.) , are as follows:
First month
Second month
Third month
Fourth month
Fifth month
Last month
$20,250.50
30,490.75
60,890.25
58,725.10
6,717.68
4,425.72
$181,500.50
Prepare partners' accounts showing the amounts payable monthly to each with-
out prejudice to the rights or individual interests of the others.
5. On January 15, 1896, A. of New York sent to B. of London, account sales
showing net proceeds due February 15th, 1896, $17,550, and remitted 60-day
sight exchange at $4.82 for balance of account.
A. had, on November 15, 1895, invested $5,000 in a demand draft, exchange at
$4.85, which he remitted to B., and on December 15th, 1895, he had further
remitted to B. a 30-day date draft for £1,759 16s. 8d., exchange at $4.83, drawn
on C. of London, who owed A. $9,000.00 on open account. Interest to be cal-
culated at 6 per cent. (360 day basis) , London date 12 days subsequent to New
York date.
Prepare account current as rendered by A. to B.; also the accounts of B. and
C. as they appear in A.'s Ledger.
6. A., B., and C. agree to purchase and sell coffee for their joint account. They
purchase 3,000 bags of coffee for $58,500, and one month thereafter sell the
same at 16 cents per pound (say 130 pounds to the bag) . The warehouse
charges, labour, cartage, weighing, brokerage, etc., amount to $600.
$20,000.00
A. contributes cash
B. contributes note
at 4 months
$19,000.00
discount at 6
per cent on same
?
C. contributes cash
$18,900.00
C. contributes note
at 3 months
2,500.00
discount at 6
per cent on same
?
?
$59,982.50
334 History of Public Accounting
It was arranged that each should contribute equally to the requisite purchase
money, in default of which interest at 6 per cent, per annum for the month
covering the transaction was to be calculated between them, to equalise their
respective contributions.
Prepare an account of the venture; also separate accounts of A., B., C, show-
ing the share of each in the final net proceeds.
Auditing
Wednesday, Dec. 16th, 1896-9:15 A.M. to 12:15 P.M., only.
One hundred credits; necessary to pass, seventy-five.
Answer questions 1, 8, 10, 14, 15, and five of the others, but no more. If more
than five of these other questions are answered only the first five of these
answers will be considered. Each complete answer will receive ten credits. Do
not repeat questions, but write answers only, designating by number as in
question paper. Check the number (-y/) of each one of the questions you have
answered. Use one side of sheet only.
1. Give a brief outline of the duties of an auditor, and of his responsibilities.
2. Explain the principal points to which an auditor should direct his attention
in conducting the audit of the accounts of an incorporated company.
3. If the actual cash on hand at the date of the Balance Sheet had not been
verified by the auditor on the day of balancing, what method should be em-
ployed to prove its correctness before signing the accounts?
4. In an audit where an exhaustive detailed examination of the books is not
stipulated, or not practicable, what examination is essential to insure their
general correctness?
5. What means should be employed to detect the willful omission to enter in
the books under audit, sales made or cash received?
6. State what should be required of a company or firm by one who is to make
an audit of its books?
7. What evidence should be required as to the correctness of values of assets
(other than customers' accounts) entered in the books?
Appendix A 335
8. State what is necessary in auditing cash payments, and how to prevent the
reproduction and passing of vouchers a second time.
9. State what examination should be made of the receivable Book Accounts of
a firm or company to ascertain what accounts, if any, should be written off as
bad.
10. How may it be determined whether certain expenditures of a manufactur-
ing business were of the nature of maintenance and repairs or constitutes an
actual betterment of the plant? State how in each case they should be dealt
with in the Balance Sheet and in the Profit and Loss Account.
11. In auditing the accounts of a business for the first time what books should
be produced? What would be the first duty of the auditor respecting these
books?
12. In auditing the accounts at the conclusion of the first fiscal year of a
corporation formed to acquire an established business, what documents and
records should be examined in addition to the ordinary books and subjects of
an audit?
13. To what extent should an auditor hold himself responsible for the correct-
ness of (a) inventories, (b) pay-rolls, (c) depreciation and discounts?
14. In an audit stipulating for the examination of all vouchers of every descrip-
tion, what would be proper vouchers for the following: purchases, returned
purchases, sales, returned sales, cash receipts, cash payments, journal entries?
15. On what basis should the following assets be valued in the preparation of
a Balance Sheet: (a) manufactured goods, (b) partially manufactured goods,
(c) raw material, (d) open Book Accounts receivable, (e) stocks, bonds, and
other investments, (f) bills receivable?!
^'Accountancy in the States," The Accountant, XXIII (January, 1897), 52-56.
Appendix B
ORIGINAL CPA CERTIFICATES ISSUED
Year ALABAMA ALASKA ARIZONA ARKANSAS
EWR EWR EWR EWR
1899 ~ ~ - — —
1900
1901
1902
1903
1904
1905
1906
1907
1908
1909
1910
1911
1912
1913
1914
1915 16 6
1916 4
1917
1918
1919 28
1920 3 2
1921 3 2
1922 1
1923 2 4
1924 5 1
1925 2
1926 4
1927 2 1
1928 5
1929 1
1930
4
1
1
2
1
1
1
1
3
2
3
2
3
3
1
4
9
2
2
1
1
1
2
1
2
6
9
Appendix B
337
Year
ALABAMA
ALASKA
ARIZONA
ARKANSAS
E W
R
E W
R
E
W
R
E
W
R
1931
_ __
1
~~ 1
~2
1932
4
2
8
1
1933
1
23
2
6
1934
1
2
1
1
15
2
1935
2
1
1
4
1
5
1936
5
1
1
1
1937
1
2
3
2
5
9
2
1938
1
3
7
1
4
2
1939
1
5
1
3
1940
1
2
19
6
1941
2
3
1
2
9
1
1942
3
7
1
4
2
5
1943
1
1
4
1
1
1944
7
2
3
4
1
3
3
1945
5
2
1
6
3
4
3
1946
13
3
9
7
9
7
1947
3
2
1
3
3
3
6
15
1948
8
3
13
4
14
13
1949
21
1
1
4
15
1
11
12
9
1950
18
1
5
22
2
3
17
20
1951
34
1
1
2
18
5
21
10
1952
30
1
4
17
7
9
5
1953
30
2
3
15
11
14
12
1954
26
4
11
1
15
11
18
1955
26
1
1
16
I
11
10
3
1956
20
2
2
1
11
14
12
7
1957
16
1
2
5
14
10
6
9
1958
21
1
3
2
14
19
19
15
Total
353
55
15
37
228
42
139
297"
10
196
(Note: E=Examination, W= Waiver, R = Reciprocity)
'
338 History of Public Accounting
ORIGINAL CPA CERTIFICATES ISSUED
Year CALIFORNIA COLORADO CONNECTICUT DELAWARE
E
W
R
E
W
R
E W
R
E W R
1899
1900
1901
20
1902
23
1903
6
1904
8
1
1905
5
2
1906
1907
4
1
25
1908
14
1
28
1909
4
1
1
1
1910
8
1
1
4
1911
4
3
1912
9
4
1913
3
4
2
8
1914
1
9
1
1
1915
3
1
2
3
1
1916
5
1
3 1
1
1
1917
3
4
4
2
8
1918
11
1
3
1919
20
3
15
3
1920
32
6
15
4
14
3
1921
22
12
7
1
8
1922
31
14
14
1
27
3
2 1
1923
28
25
15
1
13
2
1924
50
29
13
4
10
1
1925
88
41
9
14
2
1926
29
12
4
1
11
1
1
1927
63
20
8
1
11
2
1928
57
23
5
10
1
1929
64
33
9
5
1930
50
37
3
3
5
1931
55
16
4
2
9
1
1932
46
12
4
1
2
1
1933
42
14
7
12
2
1 1
1934
46
13
3
1
8
4
1
1935
39
20
1
3
7
1
1936
30
12
1
10
3
3
1937
21
17
4
5
1
8
1 1
Appendix B
339
Year CALIFORNIA
COLORADO
E W R
CONNECTICUT
E W R
DEL^
E
.WARE
E
W R
W R
1938 4?
~ 27
~5
1}
2
1
T
2
1939 51
19
7
7
1
1940 47
20
6
1
16
1
3
6
1941 44
38
18
1
9
5
1
2
1942 54
24
8
2
20
3
3
1943 56
18
2
3
2
2
1
1944 31
33
7
13
2
1
1945 62
46
9
2
3
1
1
1946 127
140
26
12
24
5
2
1947 181
111
27
11
11
8
3
1948 323
138
37
5
20
4
2
5
1949 343
82
31
8
55
5
3
2
1950 436
76
23
1
13
3
6
1951 438
79
37
7
28
5
6
2
1952 417
61
30
8
51
10
3
1953 309
56
34
12
52
7
3
1
1954 393
93
41
15
33
5
5
2
1955 358
58
29
21
15
11
5
1
1956 295
86
31
16
37
30
6
3
1957 344
112
27
12
55
17
3
1
1958 368
123
41
18
46
7
2
Total 5,609
52 1,800
626
27
192
736
31
174
75
8 36
(Note: E=Examination, W= Waiver, R— Reciprocity)
340 History of Public Accounting
ORIGINAL CPA CERTIFICATES ISSUED
DISTRICT OF
Year COLUMBIA FLORIDA GEORGIA HAWAII
EWR EWR EWR EWR
1899 ~~ " ~ ~
1900
1901
1902
1903
1904
1905
1906 6
1907
1908 15
1909 1 2 6
1910 2
1911 1 1
1912 2
1913 2
1914 6
1915 5
1916 3 10
1917 1 12
1918 13
1919 1 4
1920 2
1921 3 4
1922 3 7
1923 13 31 3 12 3 4
1924 5 3 4 10
1925 2 3 22 1
1926 5 7 26 2
1927 9 3 3 56 3 4 23 1
1928 6 11 7 4 11 27
1929 7 8 7 1 1 53 1
1930 8 3 27 12
1931 9 2 30 1
1932 8 5 10 9 7 8 11
1933 12 2 4 1 3 12 6 1
1934 11 4 3 1 1 17 1
1935 23 2 3 1 9 4 1
1936 10 5 1 4 2
Appendix B
341
Year
E
D.C.
W
R
FLORIDA
GEORGIA
HAWAII
E
W
R
E
W
R
E
W R
1937
13
1
5
1
7
1938
26
4
3
3
1939
10
5
3
3
8
2
1940
24
2
7
2
4
1
1
1941
24
1
15
7
2
6
1
1942
7
7
13
1943
22
12
7
1
1944
9
12
14
1945
17
5
1
3
3
9
2
1946
48
6
33
6
17
7
5
3
1947
25
8
21
57
8
14
6
4
3
1948
90
7
55
13
11
31
6
3
1949
62
3
43
7
48
6
8
1
1950
68
3
58
6
35
2
18
1951
85
1
56
47
6
8
2
1952
87
5
61
68
4
8
2
1953
75
10
59
48
6
7
2
1954
63
1
65
58
8
7
3
1955
65
4
52
53
4
14
3
1956
71
12
70
50
3
8
3
1957
77
15
76
43
2
5
4
1958
74
17
84
40
12
7
6
Total
1,157
20 m
923 103
7~7
969
21
86
7l8
"12 40
(Note: E=Examination, W= Waiver, R=rReciprocity)
342
Year
1899
1900
19C1
1902
1903
1904
1905
1906
1907
1908
1909
1910
1911
1912
1913
1914
1915
1916
1917
1918
1919
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
History of Public Accounting
ORIGINAL CPA CERTIFICATES ISSUED
IDAHO ILLINOIS INDIANA IOWA
E W R
16
5
1
E W R
E W R
37
42
6
10
12
8
6
5
5
3
9
2
14
6
14
13
39
31
36
75
87
101
94
29
68
45
78
46
74
64
37
38
74
75
E W R
!07
5
24
10
17
3
1
31
4
11
19
3
2
26
1
34
17
2
67
9
30
17
3
3
78
37
6
2
30
36
44
4
2
9
52
2
3
1
7
12
8
13
1
16
13
8
2
8
27
8
4
3
18
8
1
2
8
14
4
4
10
6
8
3
8
15
6
12
12
10
2
6
6
21
6
5
7
Appendix
B
343
Year
IDAH<
R
ILLINOIS
INDIANA
IOWA
E W
E
W
R
E W R
E
W R
1938
~5 "~
152
~i
21
13
~9
~~ 1
1939
1
88
13
3
4
14
1940
1
120
9
2
2
21
1941
2
123
19
3
16
1942
2
120
17
7
14
5
1943
249
14
12
9
5
1944
2
1
447
1
3
7
30
1945
2
170
29
20
18
9
7
1946
4
1
177
88
17
16
8
29
1947
3
2
393
44
12
19
9
33
1948
7
4
263
7
62
41
38
24
41
1949
19
2
269
10
89
43
24
21
16
1950
4
1
239
9
72
49
22
34
26
1951
9
3
301
83
64
24
28
23
1952
12
1
115
85
47
29
63
42
1953
15
2
252
86
43
12
13
14
1954
16
4
209
71
40
14
23
25
1955
9
1
167
85
52
14
26
31
1956
4
2
163
134
43
24
25
33
1957
12
1
249
100
38
13
21
40
1958
4
247
64
53
26
21
25
Total 148 23 32 5,865 37 1,095 1,378
(Note: E— Examination, W= Waiver, R— Reciprocity)
554
468
628
344
Year
History of Public Accounting
ORIGINAL CPA CERTIFICATES ISSUED
KANSAS KENTUCKY LOUISIANA MAINE
E W
R
1899
1900
1901
1902
1903
1904
1905
1906
1907
1908
1909
1910
1911
1912
1913
1914
1915
8
1916
1917
1918
1
1919
1
1920
1
1921
1922
3
i
1923
7
(
1924
4
<
1925
3
1926
1
<
1927
4
]
1928
6
1929
i
1930
1
1931
4
1932
1933
4
1934
7
i
1935
9
]
1936
3
i
1937
1
]
E W R
E W R
11
3
7
14
15
9
12
22
12
9
1
4
2
3
4
1
11
1
1
1
2
1
3 113
8 42
5
11
9
10
18
14
17
19
6
11
11
14
6
8
5
7
27
1
7
1
3
2
8
10
4
6
10
16
17
10
9
3
10
9
1
7
E W R
2
3
5
3
18
5
5
1
1
3
Appendix B
345
Year
KANSAS
KENTUCKY
LOUISIANA
MAINE
E W
R
E W R
E
W R
E
W R
1938
~2
"1 1
~i
4
14
"13
1939
13
5
14
7
25
14
1
1940
8
10
17
12
1
1941
8
3
7
21
18
1
1942
16
10
4
17
9
1
1943
14
1
10
3
22
5
1944
5
5
13
7
10
19
1
1945
9
7
13
17
16
20
1
1
1946
4
6
21
47
46
11
1947
12
6
20
17
19
8
1
1948
16
8
22
9
50
20
9
3
1949
33
5
9
3
28
27
1
1
1950
45
8
66
4
45
19
14
1
1951
37
2
14
6
38
3
2
6
1952
36
12
26
5
41
21
4
1
1953
33
13
36
2
25
21
2
3
1954
40
9
24
6
33
36
5
2
1955
27
4
27
5
28
43
2
4
1956
28
4
23
4
25
28
2
5
1957
37
11
13
9
23
29
3
1
1958
50
9
18
8
28
50
5
1
Total 541 148 560 200 797 155 563
(Note: E=Examination, W:= Waiver, R:=Reciprocity)
115
53
346 History of Public Accounting
ORIGINAL CPA CERTIFICATES ISSUED
Year MARYLAND MASSACHUSETTS MICHIGAN MINNESOTA
E W
R
E W
R
E W
R
E
W R
1899
1900
25
1901
1 1
1902
6
1903
3
1904
1905
1906
2
18
1907
1
3
1908
1909
4
3
3
3
1910
78 6
4
4
14 3
1911
3
26
10
1912
2
4
3
2
7
1913
7
5
1914
1
11
5
1 1
1915
1
1
17
7
1
5
1916
1
18
4
3
5
1917
7
19
7
2
1918
1
16
6
10
3
1
1919
2
31
5
7
1
1920
26
10
12
1
1
1921
12
2
23
13
5
5
2
1922
45
23
12
6
6
1923
5
64
11
6
5
2
1924
24
5
66
24
5
14
2
1925
2
75
72
91
5
2
1926
36
52
27
6
3
3
1927
29
88
9
3
10
1
1928
5
57
36
20
8
5
1929
40
37
20
8
6
1
1930
23
17
1
29
15
1931
29
1
25
1
21
15
20
3
1932
15
15
43
5
6
1933
24
9
2
40
2
15
1934
17
1
30
8
14
1935
28
3
25
4
23
3
4
6
1936
47
1
15
2
19
5
4
2
1937
26
1
17
42
6
4
7
Appendix B
347
Year
MARYLAND
E W R
MASSACHUSETTS
E W R
J MICHIGAN
MINNESOTA
E
W
R
E
W R
1938
To
2
22
1
31
~2
~5
1939
37
1
25
3
23
7
13
2
1940
47
1
32
28
10
11
3
1941
59
36
29
2
11
3
1942
40
3
32
41
35
14
3
1943
35
1
25
21
2
6
1944
32
28
51
6
5
6
1945
26
3
34
30
16
13
27
1946
32
5
48
2
46
24
10
1
1947
58
3
64
9
26
12
29
19
1948
83
3
49
8
58
15
23
34
1949
119
1
77
4
97
70
35
31
5
1950
76
8
138
2
134
20
18
15
1951
90
6
101
3
126
26
51
17
1952
119
8
89
2
137
27
41
25
1953
87
3
93
137
42
19
13
1954
64
11
119
2
128
13
36
9
1955
52
7
112
123
47
39
20
1956
98
3
94
143
24
33
21
1957
99
1
85
112
38
40
45
1958
78
4
91
1
f 167
33
28
11
Total
1/721
26
90
27284
6
48
£259
70 685
627
83 3"28
(Note:
E=Examination, W— Waiver, R— Reciprocity)
348 History of Public Accounting
ORIGINAL CPA CERTIFICATES ISSUED
Year MISSISSIPPI MISSOURI MONTANA NEBRASKA
E
W
R
E
W
R
E
W R
E W R
1899
1900
1901
1902
1903
1904
1905
1906
1907
1908
1909
16
14
14
1910
9
50
1911
1
4
1
1912
3
1
1
2
1913
2
4
1914
1
4
1
1915
4
5
1
1
1916
1
1
1917
3
3
2
2
1918
6
1
1919
1
19 1
1
1920
3
70
7
6
1921
13
12
2
1
1922
3
15
8
4
5
1923
10
17
10
5
1924
3
1
13
17
6
1
1
5
1925
2
5
17
5
6
1926
2
5
8
10
1
3
1927
1
20
5
4
1928
13
2
25
4
1929
5
3
7
2
1930
3
17
10
1
3
1931
2
15
8
1
1
1932
2
17
10
2
2
1933
8
14
19
3
1
3
1934
2
4
14
8
4
1935
1
3
9
3
21
1936
2
3
16
4
1
4
1937
3
13
8
1
13
1
Appendix B
349
Year
MISSISSIPPI
E W R
MISSOURI
MONTANA
E W R
NEBRAJ
E W
>KA
E
W
R
R
1938
~4
1
21
14
1
"9
1939
1
13
23
5
7
1940
3
8
8
8
1
5
3
1941
3
3
17
5
9
5
1942
2
38
7
3
4
1943
4
7
24
8
4
5
1944
3
5
17
6
1
1
4
1
1945
3
13
71
18
7
1946
13
10
66
8
6
4
8
2
1947
7
17
62
21
4
11
3
1948
16
15
127
20
9
2
22
1
1949
24
15
120
12
14
2
24
1950
35
11
80
19
15
43
1951
32
5
63
19
15
1
40
1952
24
12
87
26
9
4
39
2
1953
22
15
65
28
8
32
4
1954
14
5
49
32
14
1
26
1955
1956
17
17
14
6
68
61
24
28
11
7
3
37
28
1
1957
25
5
39
35
5
1
25
1958
10
2
44
21
11
2
28
16
Total
353
71 259
1,420
67 499
172
72
24
454
14
33
(Note: E— Examination, W— Waiver, R— Reciprocity)
350
Year
History of Public Accounting
ORIGINAL CPA CERTIFICATES ISSUED
NEVADA NEW HAMPSHIRE NEW JERSEY NEW MEXICO
E W
R
E W
R
E
W
R
E W R
1899
— —
—
— —
—
—
—
—
— — —
1900
1901
1202
1903
1904
27
1905
16
1906
2
1
1907
2
1908
',
1909
5
1910
1911
4
1912
2
1913
1
1914
1 8
2
1915
2
4
1916
5
13
1917
5
2
7
1918
19
12
6
1919
53
21
9
1920
1
120
8
18
1921
58
15
38
6
1922
2
9
13
20
1923
5
13
31
1924
1
13
28
13
1925
1
1
7
18
20
1926
2
1
2
31
11
1927
1
2
25
13
3
1928
2
2
2
20
17
1
1929
1
1
1
33
18
1
1930
3
39
20
1931
1
1
28
20
7
1932
1
34
12
2
1933
1
1
3
2
40
12
1
1934
2
3
46
16
6
1935
1
2
4
34
13
1936
1
2
22
1
5
1937
1
1
30
8
3
Appendix
B
351
Year
NEVADA
NEW HAMPSHIRE
NEW
E
JERSEY
W R
NEW M
E
EXICO
E W
R
E W R
W R
1938
7
1
33
15
~3
1939
18
1
1940
1
1
1
50
27
1941
1
2
1
19
13
2
1
1942
4
1
74
1
2
1943
35
1944
2
1
2
58
2
1945
2
1
28
18
2
1946
3
1
44
40
7
1947
1
2
2
3
103
31
20
9
1948
3
1
2
4
88
13
1949
1
1
101
20
16
7
1950
3
1
1
2
142
37
9
1
1951
3
2
1
1
147
32
3
1
1952
3
4
3
149
29
10
15
1953
3
5
2
2
141
32
4
12
1954
I
7
2
3
134
35
5
30
1955
3
3
3
4
124
34
9
8
1956
6
1
5
4
159
28
6
85
1957
8
5
2
127
33
9
17
1958
2
2
1
9
110
26
6
65
Total 54 3 56 315 162 2,481 44 657
(Note: E— Examination, W— Waiver, R=Reciprocity)
125 6 272
352 History of Public Accounting
ORIGINAL CPA CERTIFICATES ISSUED
NORTH
NORTH
Year
NEW YORK
CAROLINA
DAKOTA
OHI
E W
O
E
W
R
E
W
R
E
W R
R
1896
56
1897
70
1898
6
1
1899
9
2
1900
6
1901
13
49
1902
30
1
1903
15
2
1904
15
2
1905
24
2
1906
15
1907
31
1908
8
1?
1909
48
22
3
1910
48
13
4
1911
57
10
1
1912
48
2
1
1913
28
3
1
14
5
1
1914
37
4
1
3
12
3
1915
23
6
1
8
2
1916
60
5
2
9
2
1917
41
5
2
10
4
1918
44
4
1
6
1
1919
63
36
2
7
9
1920
45
1
50
34
10
1921
142
27
1
18
3
1922
189
1
76
4
1
19
7
1923
140
1
23
1
4
63
11
1924
156
13
11
1
14
3
1925
207
9
13
1
30
6
1926
327
14
19
33
2
78
5
1927
264
8
17
10
6
15
10
1928
283
30
7
4
2
21
1929
92
3
8
2
8
1
1930
325
105
4
1
1
1
22
7
1931
303
2
115
9
7
1
1
28
5
1932
368
36
15
8
30
1
1933
237
49
12
5
1
54
3
Appendix B
353
NORTH
NORTH
Year
NEW YORK
CAROLINA
DAKOTA
OHIO
E
W
R
E
W
R
E
W
R
E
W R
1934
295
"39
10
~7
13
_
1935
375
25
5
11
6
52
4
1936
491
43
1
13
1
15
2
1937
629
25
3
1
50
7
1938
924
29
11
30
5
22
1939
661
13
11
1
44
23
1940
785
2
2
11
3
1
60
4
1941
548
1
2
10
1
80
7
1942
644
4
15
1
2
61
3
1943
499
1
12
2
31
3
1944
323
4
9
43
11
1945
356
16
9
1
49
6
1946
470
14
5
21
6
2
2
87
16
1947
655
8
1
21
5
3
117
10
1948
719
44
19
68
5
159
13
1949
659
156
1
64
23
3
2
66
19
1950
477
26
65
4
7
4
119
19
1951
652
75
9
9
116
6
1952
283
4
52
14
6
137
32
1953
411
3
14
37
16
6
3
114
14
1954
483
33
48
17
6
2
110
28
1955
520
50
19
6
4
122
14
1956
424
32
56
13
12
117
18
1957
377
42
39
54
10
8
92
41
1958
404
38
54
6
9
2
115
15
Total
16,811
6~95 531
1,149
14 303
107
4
34
2,529
72 422
(Note: E=: Examination, W= Waiver, R=Reciprocity)
354 History of Public Accounting
ORIGINAL CPA CERTIFICATES ISSUED
PUERTO
Year
OKLAHOMA
E W R
OREGON
E W R
PENNSYLVANIA
RICO
E
W
R
E W R
1896
1897
1898
1899
33
1900
10
1901
1
1902
1
1903
3
1904
2
1905
1
1906
4
1907
6
11
1908
8
3
1909
7
1
1910
13
1911
2
2
1912
10
1913
43
10
3
1914
1915
5
22
2
1916
6
16
1917
1 1
8
8
2
1918
35
4
31
2
1919
13
16
1920
6
9
1
33
1921
20
2
4
1
30
7
1922
23
6
6
7
1923
21
3
11
6
25
1924
12
4
3
1
43
12
1925
17
7
2
135
4
1926
15
4
4
79
8
1927
10
5
63
9
1928
3
1
11
1
77
5
1929
4
9
3
56
13
1930
5
1
56
8
1931
2
2
5
1
46
6
1932
9
5
2
2
60
6
1933
1
31
3
4
31
7
Appendi
x B
355
PUERTO
Year
OKLAHOMA
OREGON
E W R
PENNSYLVANIA
RICO
E
W R
E
W
R
E W R
1934
~3
7
~5
1
44
~~ 7
1935
10
3
4
1
43
11
1936
2
5
6
2
37
11
1937
10
2
17
4
38
17
1938
3
8
11
2
30
1939
5
6
8
102
16
1940
19
3
21
1
75
12
1941
12
7
66
6
1942
40
16
3
70
17
1943
10
8
16
4
70
9
1944
23
11
3
10
1945
5
7
15
7
42
26
1946
26
8
26
5
97
25
1947
17
9
23
14
138
41
1948
53
18
57
6
178
18
1949
58
4
17
2
250
17
1950
90
9
85
23
332
25
1951
25
6
48
39
306
19
3 38
1952
69
20
44
8
293
10
1 35
1953
42
14
31
6
181
10
7 11 8
1954
68
12
28
10
106
8
4 46 4
1955
75
9
51
5
167
4
1 15
1956
47
24
40
10
206
4
1957
42
18
37
4
107
14
1958
54
14
46
4
175
14
1
Total
986
1 295
770
43
199
4^014
33 499
77 145 ii
(Note: E=
zExamination, W:
-Waiver, R = R(
jciprocity
)
356
History of Public Accounting
ORIGINAL CPA CERTIFICATES ISSUED
SOUTH
SOUTH
Year
RHODE ISLAND
E W R
CAROLINA
DAKOTA
TEN1
E
VESSEE
E
W
R
E
W R
W R
1896
1897
1898
1899
1900
1901
1902
1903
1904
1905
1906
1
13
1907
1
2
1908
1909
1
1
1910
1
1
1911
1
1312
1913
47
1914
1
1
2
1915
2
27
1916
5
1917
2
3
1918
1919
1
2
1
1
1920
3
2
1
5
1
1921
2
3
1
1922
4
1
1923
5
6
2
8
23 9
1924
9
4
7
3 3
1925
3
2
1
3
100 5
1926
2
1
4
10
20
1927
1
3
1
1
6
1928
3
6
1
16
10
1929
1
4
4
2 17
1930
3
3
2
1
3
3 4
1931
2
1
3
3 5
1932
3
9
2 4
1933
4
1
9
4
Appendix B
357
SOUTH
SOUTH
Year
RHODE ISLAND
E W R
CAROLINA
DAKOTA
TENNESSEE
E
W
R
E
W R
E
W
R
1934
1935
~2
4
~2
~4
10
~2
4
1936
1
2
1
1
2
5
7
1937
1
2
24
5
1938
1
1
18
3
1939
7
2
4
1
1
15
21
5
1940
1
3
1
14
3
1941
3
5
1
21
2
1942
7
1
1
1
14
4
1943
1
1
1
6
1
1944
6
3
1
1
18
10
1945
1
3
22
11
1946
4
1
3
2
1
19
10
1947
9
2
7
2
26
19
1948
4
6
51
11
1949
5
5
4
2
34
24
1950
17
12
12
5
1
70
5
1951
6
7
11
1
73
5
1952
7
2
14
3
2
22
30
1953
3
9
8
4
4
47
12
1954
12
5
11
3
1
50
9
1955
8
4
10
4
3
50
16
1956
6
10
9
1
3
37
13
1957
9
7
10
1
3
46
10
1958
17
20
10
1
4
37
25
Total
183
16
109
181
28
42"
40
T
815 204 335
(Note: E— Examination, W=: Waiver, R— Reciprocity)
358
History
o/ Public Accounting
ORIGINAL CPA CERTIFICATES ISSUED
Year
E
EXA
S
R
UTA]
ft
R
VERMONT
VIRGINIA
W
E
W
E
W R
E
W
R
1896
1897
1898
1899
1900
1901
1902
1903
1904
1905
1906
1
1907
1
1
1908
1
1909
1910
1
3
16
1911
2
1
1912
4
2
1913
1
2
1914
4
1
2
1915
2
24
1
1916
1
25
7
2
1917
1
2
6
1918
2
1
4
2
1
1
2
1919
1
2
3
4
1
1
2
1920
7
15
2
1
1
1921
9
3
2
9
1922
22
3
2
2
1923
10
4
1
1
6
1924
37
12
6
5
6
1925
16
12
1
3
1
13
1926
7
7
1
2
2
11
5
1927
27
6
3
1
9
1
1928
42
4
1
11
9
1929
12
1
2
3
20
1
1930
25
1
7
1
18
4
1931
14
4
4
17
1
1932
29
7
5
2
8
1933
36
15
5
2
4
1
1934
27
7
5
1
10
Appendix B
359
Year
TEXA
R
UTA1
R
VERMONT
VIRGINIA
E
W
E
W
E W R
E
W R
1935
33
~6
~6
~2 ~
~8
~1
1936
15
10
1
1
1
6
1937
50
31
6
1
7
1938
68
18
6
1
9
1939
55
12
2
1
1
1
9
1940
34
9
4
1
1
1
5
1941
63
11
3
18
1
1942
52
16
9
3
1
28
1943
43
22
5
19
1944
37
24
5
1
16
4
1945
78
28
1
6
1
12
2
1946
121
59
15
6
1
16
7
1947
65
32
15
4
1
31
8
1948
210
58
12
10
2
2
18
28
1949
190
43
17
13
1
2
33
8
1950
302
45
20
5
2
1
31
5
1951
249
27
20
5
1
19
13
1952
224
81
20
5
2
55
10
1953
172
35
27
10
4
34
25
1954
201
49
17
7
4
1
22
72
1955
222
34
14
6
1
1
20
18
1956
184
51
22
2
1
1
39
22
1957
218
39
24
18
1
33
9
1958
250
52
34
10
1
38
38
Total
3,463
52 901
372
2 123
45
22
689
17 300
(Note: E=Examination, W= Waiver, R=Reciprocity)
360 History of Public Accounting
ORIGINAL CPA CERTIFICATES ISSUED
Year WASHINGTON WEST VIRGINIA WISCONSIN WYOMING
E W
R
E
W R
E
W
R
E W R
1896
1897
1898
1899
1900
1901
1902
1903
27
1904
1905
1906
5
1907
1908
2
1909
3
1910
7
1911
5
18
17
1912
6
1913
3
24
7
1914
5
12
1
7
2
1915
4
3
12
10
6
1916
7
1
3
2
1917
6
9
5
2
1918
3
1
1919
17
1
8
1
6
1920
18
2
7
1
3
1921
20
8
1
14
1922
12
1
16
1
11
6
1923
8
1
7
3
7
1924
13
2
32
2
1
1925
6
3
22
2
1 2
1926
7
18
11
1
1927
20
1
3
21
18
9 1
1928
17
2
5
1
5
2
1929
19
2
1
40
28
5 1
1930
4
1
17
13
1931
14
1
44
5
14
3
1932
18
5
52
11
3
1933
11
2
10
1934
15
1
3
2
43
14
3
5
Appendix B
361
Year
WASHINGTON
WEST VIRGINIA
E W R
WISCONSIN
WYOMING
E
W
R
E
W
R
E
W R
1935
20
~2
~8
1
38
~5
~4
1936
16
2
47
1937
21
1
80
3
1
1938
22
2
1
23
9
1939
29
1
1
33
5
2
1940
38
51
7
1
1941
50
2
4
38
5
1
1
1942
36
1
52
3
1943
30
5
36
1944
31
32
21
3
1945
44
6
2
31
3
1
1
1946
51
2
5
1
34
13
1
1947
98
3
1
40
32
4
1948
59
8
5
1
55
33
1
1949
69
27
13
4
74
11
5
1
1950
73
52
8
5
89
25
7
2
1951
107
19
9
5
109
18
2
2
1952
102
20
10
6
92
9
14
2
3
1953
68
13
11
9
72
26
6
1954
79
19
8
6
30
4
15
5
1955
61
18
15
1
40
10
3
4
1956
64
24
15
1
63
9
3
4
1957
94
25
6
4
60
41
6
2
1958
68
9
10
5
69
38
5
1
Total
1,602
27 255
"l74
21
61
1,657
187 424
96
17 25
(Note: E— Examination, W=Waiver, R— Reciprocity)
362 History of Public Accounting
ORIGINAL CPA CERTIFICATES ISSUED
GRAND
TOTAL
Year
TOTAL
E
W
R
1896
56
1897
70
1898
6
1
1899
9
35
1900
16
25
1901
15
70
1902
37
24
1903
58
41
1904
67
31
1905
36
20
1906
58
20
1907
62
28
11
1908
56
229
4
1909
115
108
8
1910
201
117
8
1911
122
47
11
1912
108
9
2
1913
89
139
16
1914
122
7
25
1915
411
77
35
1916
213
33
35
1917
254
20
29
1918
248
8
56
1919
379
27
78
1920
532
73
94
1921
607
7
99
1922
774
2
120
1923
724
29
182
1924
851
7
210
1925
988
100
273
1926
949
11
179
1927
999
6
147
1928
875
5
193
1929
692
3
200
1930
793
3
306
1931
866
10
270
1932
934
58
121
1933
759
83
149
1934
801
55
139
56
70
7
44
41
85
61
99
98
56
78
101
289
231
326
180
119
244
154
523
281
303
312
484
699
713
896
935
1,068
1,361
1,139
1,152
1,073
895
1,102
1,146
1,113
991
995
Appendix
B
Year
TOTAL
GRAND
E
963
W
55
R
152
TOTAL
1935
1,170
1936
954
48
113
1,115
1937
1,277
38
172
1,487
1938
1,583
31
204
1,818
1939
1,385
21
199
1,605
1940
1,605
9
179
1,793
1941
1,435
13
155
1,603
1942
1,620
175
1,795
1943
1,369
122
1,491
1944
1,345
25
208
1,578
1945
1,247
1
384
1,632
1946
1,863
14
670
2,547
1947
2,425
65
619
3,109
1948
3,165
64
727
3,956
1949
3,251
248
605
4,104
1950
3,712
37
634
4,383
1951
3,784
40
562
4,386
1952
3,272
46
717
4,035
1953
2,963
42
631
3,636
1954
2,988
54
776
3,818
1955
3,019
16
640
3,675
1956
2,931
850
3,781
1957
2,851
912
3,763
1958
3,122
43
887
4,052
363
Total 68,955 2,604 14,293
(Note: E=Examination, W= Waiver, R— Reciprocity)
85,852
Index
Accounting Principles, 201-206, 232-236
Accounting Principles Board, 199, 232-
235, 249, 251
Accounting Procedure Committee, 197,
248-251
Accounting research bulletins, 170-171,
205, 232
issued from 1950 to 1959, 236-240
Accounting terminology bulletins, 240-
241
Administrative Practitioners Bill, 193-
195
Advisory Committee to the Council of
National Defense, 108-109
AFL-CIO Council, independent audits
required by, 200-201
Agran case, 276-281
American Association of Public
Accountants
attempts to unify C.P.A.'s nationally,
88-90, 114-118
certificate of incorporation, 55-56
educational effort, 61-65
merger with Federation, 87-90
proposal for legal recognition, 65-67
American Association of University
Instructors in Accounting, 136
American Institute of Accountants, 118
accounting research bulletins, 170
Agran case, 276-281
attempt to obtain federal charter,
120-127
attempt to restrict membership to
C.PA.'s, 130
auditing standards, 149-173
Board of Examiners, 130-132, 185
bulletins, 165, 210
Bureau of Research, 132-133
Commission on Standards of
Education and Experience, 222-226
Committee on Accounting
Procedures, 197
Committee on Auditing Procedures,
171, 197, 206
Committee on Cooperation with the
Bar Association, 188
Committee on Education, 179-180
Committee on Management
Services, 207
Committee on Professional Ethics,
206, 256-262
•Committee on Relations with I.C.C.,
201-202
Committee on Relations with the
Bar, 282-283, 293
Committee on State Legislation, 223
Committee on the Extension of
Auditing Procedure, 169
library, 132
merger proposal, 180-185
name change, 246-247
policy on regulatory legislation, 218,
219, 220-222
request for pamphlet by Federal
Reserve Board, 134
Rules of Professional Conduct, 255-
256
views on education, 135
American Institute of Accountants in
the United States of America, 117-118
American Institute of Certified Public
Accountants, 177
Accounting Principles Board, 199,
249-251
Committee on Long-Range
Objectives of the Profession, 245
cooperation with noncertified public
accountants, 243
Council's position on standards of
education and experience, 226-228
membership, 246
name change, 246-248
Rules of Professional Conduct, 251-
255
Special Committee on Research,
232-236
utility companies challenge
accounting opinions, 248-251
American Institute Publishing
Company, Inc., 185
American Society of Certified Public
Accountants, 123, 126, 127-130
merger proposal, 180-185
views on education, 135
Andersen, Arthur, 78
Andersen, DeLong and Company, 78
Antecedents of American public
accounting, 5-31
activities of early professional
organizations, 29-30
combined vocations, 15-19
court decisions, 9-12
early professional organizations,
19-24
investigative and audit functions, 5-9
other functions and influential laws,
12-15
professional standards, 24-25
training, 25-29
Anyon, James T., 49, 52, 54-57, 74
Approved Methods for the Preparation
of Balance Sheet Statements, 134, 140,
149
Index
365
Arthur Andersen and Company, 138, 196,
203, 205, 211, 272-273
Arthur Young and Company, 77-78, 92,
106-107, 207, 211, 216
Associate Chartered Accountant
(A.C.A.), 24
Association of C.P.A. Examiners, 185,
223, 226
Atlas Plywood Corporation, 272-273
Audit requirements stock exchanges,
149-154
Auditing procedure, statements on, 241-
242
Auditor's responsibility, 141-147, 156-157,
159, 163-168, 200
Audit standards, 90-93, 140-141, 149-173
Bankruptcy Act of 1869, 14, 30
altered by the Act of 1833, 15
Barrow, Wade, Guthrie and Company,
49, 52, 74, 95, 172-173, 211, 266-268
Beck, A. G., 59
Beck, Francis E., 36, 59
Bennett, James, 57-58, 60
Bercu case, 188, 191-193, 276, 284
Board of Tax Appeals, 103
practice before, 133-134
Broaker and Chapman, 68, 74
Broaker, Frank, 68, 74
Bryant and Stratton School, 60
Bureau of Internal Revenue, 104
Calhoun, Wm., 55-56
Certificates, 90-93
Certified Public Accountants, 35, 65
conflict with lawyers, 186-196, 275-
297
cooperation of lawyers and C.P.A.'s,
282-286
cooperation with bankers, 230
educational activities of, 61-65, 78-83,
135-136, 179-180, 222-226
examination and certification of, 73-
77
legal recognition of, 68-73
legal responsibility of, 97, 141-147,
156-157, 159, 163-168, 200, 262-263
management services by, 206-210
professional expansion of, 77-78,
136-140, 210-218
professional organizations (see
Professional organizations)
use of C.P.A. title, 273-275
use of title Tax Consultant, 293-296
women C.P.A.'s, 231
Chapman, Richard M., 68, 74
Chartered accountant, 19, 21, 22
Chartered Accountant's Students' Society,
25
C.I.T. case, 266-268
Comer, George N., 59
Commission on Standards of Education
and Experience, 222-226
Committee on Auditing Procedures, 171,
206
Committee on Cooperation with the Bar
Association, 188
Committee on Education, 179-180
Committee on Long-Range Objectives of
the Profession, 245
Committee on Management Services, 207
Committee on Professional Ethics, 206
opinions, 257-262
Committee on Relations with I.C.C., 201-
204
Committee on Relations with the Bar,
282-283
Committee on Research (Special) , 232-
236
Committee on State Legislation, 223
Committee on Terminology, 33
Committee on the Extention of Auditing
Procedure, 169
Companies Act of 1862, 8, 14, 30
Company Clause Consolidation Act of
1845, 7
Conway case, 275-276
Coopers & Lybrand, 215
Cost-Pius — Fixed-Fee Contracts, 171
C.P.A. law, first violation of, 72-73
Craig v. Any on, 146
Davies, William Sanders, 68, 74, 109, 134
Definitions
accounting, 33-34
bookkeeping, 33
Certified Public Accountant, 35
management services, 207
public accountant and public
accounting, 34-41
record keeping, 33
Deloitte, Dever, Griffiths and Company,
49
DeMond, C. W., 92
Depression, influence of the, 148-149
Dickinson, A. L., 86-87, 88
Drayer- Hanson case, 172-173
Early American Accountants, 42-51
advertising by, 44-47
directory listings of, 45-46
formation of accounting firms by,
48-51
functions of, 43-48
influenced by British accountants,
42-43
Education, 61-65, 78-83, 135-136, 179-180,
222-230
continuing education, 229-230
graduate study, 228-229
366
History of Public Accounting
Ernst and Ernst, 138, 197, 212
Ethics, 176
and the practice of law and public
accounting, 287-288
professional, enforcement of, 256-
262
"Examination of Financial Statements by
Independent Public Accountants," 165,
169
Examinations, 24-27, 57, 73-77, 130-132,
185-186, 224
"Extension of Auditing Procedure," 170
Fabian, Robert L., 55-56
Federal regulation, efforts at, 70-72
Federal Reserve Board, request for
pamphlet from, 134, 149
Federation of Societies of Public
Accountants, 81, 84-88
Fellow Chartered Accountants (F.C.A.) ,
24
Fernley, J. W., 79
Foster, Benjamin F., 58
Frayer v. Shelton, 174
Generally Accepted Accounting
procedures, development of, 161, 166-
167, 201-206, 232-236
Generally accepted auditing procedures
Coastal Finance Company, 268-269
definition of, 164-166
extension of audit procedures, 168-
170
SEC's expert witnesses, 165
statements on auditing procedure,
241-242
Guthrie, Edwin, F.C.A., 53
Haskins and Sells, 50, 78, 95, 263-264
Haskins, Charles W., 36, 50, 80, 85
Heins, John, 47, 53-57
Income Tax, Corporation
law passed in 1909, 93-97
law passed in 1913, 101-104
Incorporated Society of Liverpool
Accountants, 22
Independence, 161-162
Institute of Accountants, 22, 51
Institute of Accountants and
Bookkeepers, 51-52, 65-67
Institute of Chartered Accountants in
England and Wales, 9, 23, 26
Institute of Chartered Accountants in
Ireland, 24
Internal Revenue Department, 104
International Congress of Professional
Accountants, 86
International Congress on Accounting
Sixth, 243-244
Seventh, 244-245
Interstate Commerce Commission, 201-206
J. Harold Lehman v. State Board of
Public Accountancy, et al., 113
Johnson, Joseph French, 81
Jones & Caesar, 48, 51
Jones, Caesar and Company, 50, 77, 99
Jones, Caesar, Dickinson, Wilmot and
Company, 86, 87
Kell, James N., 48
Kingston Cotton Mill Co. case, 11, 140, 165
Lawyers
accountant's relationship to, 97-99,
188-196, 275-297
common interests of lawyers and
C.P.A.S, 296-297
cooperation of lawyers and C.P.A/S,
284-286
employment by C.P.A. firms, 288-293
objectionable tax activities listed by
the A.BA., 284
Lee, Robert E., 61
Leeds Estate, Building and Investment
Company v. Shepherd, 9, 140
Legal recognition
constitutionality of Oklahoma C.PA.
law, 110-114
federal charter attempts by A.I.A.,
120-127
New York C.P.A. act, 68-70
proposal for, 65-67
Securities Act of 1933, 156-157
Legislation, regulatory, 173-179, 218-222
list of states having, 219-220
Liability of public accountant, 156-157,
159, 167-168, 262-263, 266-268
London and General Bank case, 10, 140
Lybrand, Ross Brothers and
Montgomery, 78, 87, 95, 137, 196, 213,
215, 288
Lybrand, William N., 35, 79
McKesson & Robbins Case, 163-170
McLaren, Goode, West & Co., 211
McLaughlin, Rodney, 55-57
Management services, 206-210
bulletins on, 210
defined, 207
Manchester Institute of Accountants, 22
Marsh, Christopher C, 59
Marwick, Mitchell & Co., 95
May, George O., 132, 134
Meade, Edward S., 81
Merger of professional organizations, 88-
90, 123-127, 180-185
Mirick, Mark C, 55-57
Montgomery, Robert H., 78, 79, 81, 85-
86, 88, 108, 134, 231
Index
367
National Association of Certified
Public Accountants, 118-120
National firms
continuation of expansion, 196-197,
210-218
reasons for growth of, 138-140
National Society of Certified Public
Accountants, 84
National Surety v. Ly brand, 146
New York Stock Exchange, influence of,
149-154
Niles, H. A., 108
Opinions, Accounting, Challenged by
Utility Companbes, 248-251
Pacioli, 42
Peat, Marwick, Mitchell & Co., 211, 217,
272-273
Pollock v. Farmer's Loan and Trust Co.,
102
Practice of law and public accounting,
287-288
Price, Samuel Lowell, 50
Price, Waterhouse and Company, 48, 49,
50, 51, 77, 87, 92, 95, 132, 137, 164-
167, 197, 215
Professional organizations
American Association of Public
Accountants, 52-57, 61-67, 82-84,
87-90, 114-118
American Institute of Accountants,
118
American Institute of Accountants in
the United States of America, 117
American Institute of Certified
Public Accountants, 74, 83, 177
American Society of Certified
Public Accountants, 123, 126, 127-
130
attempts to achieve national
unity, 88-90, 123-127, 180-185
Incorporated Society of Liverpool
Accountants, 22
Institute of Accountants, 22, 51
Institute of Accountants and
Bookkeepers, 51-52, 65-67
Institute of Chartered Accountants
in England and Wales, 9, 23, 26
Institute of Chartered Accountants
in Ireland, 24
Manchester Institute of Accountants,
22
National Association of Certified
Public Accountants, 118-120
National Society of Certified Public
Accountants, 84
Sheffield Institute of Accountants, 22
Society of Accountants in Aberdeen,
21
Society of Accountants in
Edinburgh, 19, 21
Society of Accountants in England,
22
Society of Incorporated Accountants
and Auditors, 23
Public Accountant, 34-41
Public accounting, 34-41
Quain, Mr. Justice, 14, 24
Railroad Accounting Procedures, 201-
206
Reporting standards, 140-141, 200-206
Responsibilities of the professional
accountant, 97, 141-147, 156-157, 159,
163-168, 200, 262-263
Richardson, A. P., 83, 108
Robertson, Alexandria Weir, 19
Ross, Touche & Co., 214
Rules of Professional Conduct, 205, 251-
255
Seaboard Commercial Corporation
Case, 269-272
Securities Act of 1933, 154, 162
Securities and Exchange Commission,
158-163, 199
Coastal Finance Company matter,
268-269
influences of, 263-266
opinions of, 160-161
public hearing before, 164-166
Seaboard case, 269-272
Securities Exchange Act of 1934, 158-159,
162
Sells, Elijah W., 36, 50, 108
Sheffield Institute of Accountants, 22
Sibley, Charles H. W., 55-57
Smith, C. W., 84
Snell, Charles, 5-6, 12, 15
Society of Accountants in Aberdeen, 21
Society of Accountants in Edinburgh, 19,
21
Society of Accountants in England, 22
Society of Incorporated Accountants and
Auditors, 23
Spacek, Leonard, 203-204, 206
State v. Riedell, et al., 112
State Street Trust Co. v. Ernst, 145-
Sterrett, Joseph E., 86
Stockwell, H. G., 79 '
Stuart and Young, 50, 77
Suffern, Edward L., 83, 108
Tax Court of Appeals, 195-196
Tax consultant, title of, 293-296
Tax practice, controversy over, 188-196,
275-297
Agran case, 276-281
368
History of Public Accounting
Conway case, 275-276
objectionable tax activities (A.B.A.) ,
284
practice before Treasury
Department, 281-283
statement of principles relating to
federal income tax practice, 284-
285
Teele, Arthur W., 108, 131
The Accountant, 6, 30, 51, 167-168
The Accountant's Magazine, 30
The Journal of Accountancy, 75, 81, 103,
131, 140, 161, 203, 211, 229, 231, 273,
276, 279
The Matter of Ramsey County Bar Asso-
ciation v. Conway, 275-ZJ6
The Office, 34
The Public Accountant, 35
The State ex rel. Short, Attorney General
et al. v. Riedell, 174
Thomascolor case, 263-264
Touche, George A., 214
Touche, Niven and Company, 141-145, 213
Touche, Niven, Bailey & Smart, 213, 214,
269-272
Treasury Department, practice before,
186-187, 281-283
Trial Board, 256
Ultramares Corporation v. Touche et
al, 141-145
Verification of Financial Statements,
149, 153, 159
Veysey and Veysey, 48
Veysey, Walter H. P., 48, 55-57
Veysey, William H., 56-57
Wangerin et al v. Wisconsin State Board
of Accountancy, et al., 174
War contracts, 106-107
War Profits Control Act, 170
Watson, George, 18, 25
Wharton, Joseph, 61
Wilkinson, George, 36, 49, 84-88
Wilmot, H. W., 86
Women C.P.A.'s, 231
World War I, public accounting influ-
enced by, 104-109
World War II, public accounting influ-
enced by, 170-172
Yalden, James, 49, 55-57, 61, 63, 69
Young, Arthur, 50, 92
Date Due
C CIZ '621^
DiaPCl^U^}|^° Due **** Returned
r EB i 6 '63
APR 17. 'K»
-•
«
~
fflP igM Ml
%V 16 "S4 jf,
JJUgfc
miMM
HgflL
_^
10-86 JIC
*&&-
SEP ;0'8<
BUS <eS6
ADM.
History of public accounting i main
657.6E26hC2
3 12b2 D32T2 T12b
Live Music Archive
Librivox Free Audio
Metropolitan Museum
Cleveland Museum of Art
Internet Arcade
Console Living Room
Books to Borrow
Open Library
TV News
Understanding 9/11